Stock J has a standard deviation of 67 percent, and Stock K has a standard deviation of 51 percent. The correlation between the two stocks is -0.10. What is the variance of a portfolio of the two assets with 35 percent invested in Stock J?
A) 0.1026
B) 0.2318
C) 0.1653
D) 0.1493
E) 0.1986

Question

Quizplus · Accepted Answer

The variance of a portfolio is calculated using the formula: Var(P) = (wJ^2 * σJ^2) + (wK^2 * σK^2) + (2 * wJ * wK * σJ * σK * Corr(J,K)), where wJ and wK are the weights, σJ and σK are the standard deviations, and Corr(J,K) is the correlation. Plugging in the values: Var(P) = (0.35^2 * 0.67^2) + (0.65^2 * 0.51^2) + (2 * 0.35 * 0.65 * 0.67 * 0.51 * -0.10) = 0.1493.

Stock J Has a Standard Deviation of 67 Percent, and Stock