You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B.What is the standard deviation of this portfolio?
A)4.39 percent
B)5.68 percent
C)6.41 percent
D)7.14 percent
E) 9.08 percent

Question

You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B.What is the standard deviation of this portfolio? 
A)4.39 percent 
B)5.68 percent 
C)6.41 percent 
D)7.14 percent 
E) 9.08 percent

Quizplus · Accepted Answer

E(R-Boom) = (.40 × 22) + (.60 × 19) = 20.20E(R-Normal) = (.60 × 12) + (.40 × 10) = 10.80E(R-Recession) = (.60 × -26) + (.40 × -4) = -12.80E(R-Portfolio) = (.15 × 20.20) + (.80 × 10.80) + (.05 × -12.80) = 11.03Var(Portfolio) = .15(20.20 - 11.03)² + .80(10.8 - 11.03)² + .05(-12.80 - 11.03)² = 41.05Std Dev(Portfolio) = √41.05 = 6.41%

You Have a Portfolio Which Is Comprised of 35 Percent