The expected returns for Bumpy Inc.and Bouncy Inc.are 20 percent and 8 percent,respectively.The standard deviation is 35 percent for Bumpy and 16 percent for Bouncy.What is the portfolio standard deviation if 45 percent of the portfolio is in Bumpy and the two securities have perfect negative correlation?
A) 4.60%
B) 6.95%
C) 0.21%
D) 0.48%

Question

Quizplus · Accepted Answer

σ = √(w_Bumpy* σ_Bumpy- w_Bouncy* σ_Bouncy)² = √(0.45*0.35-0.55*0.16)² = 6.95%

The Expected Returns for Bumpy Inc