You construct an equally weighted,two asset portfolio between ACME Corp.,an American valve and regulator manufacturer,and Wayne Enterprises,a Hong Kong property company.The standard deviation of the returns on ACME's shares is 30% and 55% on Wayne Enterprises.Because of the international diversification,the returns on the two companies have no covariance (correlation = zero).What is the standard deviation of returns of the portfolio?
A) 9.81%
B) 17.60%
C) 22.50%
D) 31.32%
E) 42.50%

Question

Quizplus · Accepted Answer

Apply the equation for the standard deviation of a 2 asset portfolio: σ_p = 11ea7fdb_fc05_1c3e_a768_5f0b21acafbe_TB2902_11 Remember, the correlation is zero. σ_p = 11ea7fdb_fc05_434f_a768_4942b3ba0cf3_TB2902_11 σ_p = 11ea7fdb_fc05_4350_a768_0f872d468a44_TB2902_11 σ_p = 11ea7fdb_fc05_4351_a768_ad465a5bb437_TB2902_11 = _{0.3132 or 31.32%}

You Construct an Equally Weighted,two Asset Portfolio Between ACME Corp