What is the standard deviation of the returns on a portfolio that is invested 52 percent in stock Q and 48 percent in stock R?
A)1.66 percent
B)2.47 percent
C)2.63 percent
D)3.28 percent
E)3.41 percent

Question

What is the standard deviation of the returns on a portfolio that is invested 52 percent in stock Q and 48 percent in stock R? 
A)1.66 percent 
B)2.47 percent 
C)2.63 percent 
D)3.28 percent 
E)3.41 percent

Quizplus · Accepted Answer

E(r)_Boom = (0.52 × 0.14) + (.0.48 × 0.16) = 0.1496E(r)_Normal = (0.52 × 0.08) + (0.48 × 0.11) = 0.0944E(r)_Portfolio = (0.10 × .0.1496) + (0.90 × 0.0944) = 0.09992Var_Portfolio = [0.10 × (0.1496 - 0.09992)²] + [0.90 × (0.0944 - 0.09992)²] = 0.000274Std dev = √0.000274 = 1.66 percent

What Is the Standard Deviation of the Returns on a Portfolio