Use the table for the question(s) below.
Consider the following covariances between securities:

-The variance on a portfolio that is made up of a $6,000 investment in Duke Energy stock and a $4,000 investment in Wal-Mart stock is closest to:
A) 0.050
B) 0.045
C) 0.051
D) -0.020

Question

Use the table for the question(s) below.
Consider the following covariances between securities:
 
-The variance on a portfolio that is made up of a $6,000 investment in Duke Energy stock and a $4,000 investment in Wal-Mart stock is closest to:
A) 0.050 
B) 0.045 
C) 0.051 
D) -0.020

Quizplus · Accepted Answer

B) Total invested = $6,000 + $4,000 = $10,000 X_Duke = 11ea7e5a_6e65_9a03_9a0a_1f7a47f187e0_TB1623_11 = .60 X_Wa_l-Mart = 11ea7e5a_6e65_9a04_9a0a_8360f91b47e2_TB1623_11 = .40 Var(R_p) = x₁²^Var(R₁) + x₂²^Var(R₂) + 2X₁X₂Cov(R₁,R₂) = (.60)²(0.0568) + (.40)²(0.1413) + 2(.6)(.4)(0.0037) = 0.0449

Use the Table for the Question(s) Below