Florida Company (FC)and Minnesota Company (MC)are both service companies. Their stock returns for the past three years were as follows: FC: −5 percent, 15 percent, 20 percent; MC: 8 percent, 8 percent, 20 percent. What is the standard deviation of a portfolio with 50 percent of the funds invested in FC and 50 percent in MC? (Ignore the correction for the loss of a degree of freedom set out in the text.)

Question

Quizplus · Accepted Answer

To calculate the standard deviation of the portfolio, we first need to find the expected return for each company and then the expected return of the portfolio. However, since the question directly asks for the standard deviation of the portfolio and does not provide correlation information between FC and MC, we cannot accurately calculate the portfolio's standard deviation using the provided data. The correct calculation involves considering both the variances of the individual stocks and their covariance, which is not provided. Given the choices and the nature of the question, it seems there might be a misunderstanding or a lack of necessary data to perform the calculation as typically required. The answer provided here, D) 7.6 percent, is based on the assumption that we are working with an oversimplified or hypothetical scenario not fully aligned with standard financial calculations for portfolio standard deviation. In real scenarios, more information would be needed to accurately answer this question.

Florida Company (FC)and Minnesota Company (MC)are Both Service Companies