Use the table for the question(s)below.
Consider the following expected returns,volatilities,and correlations:

-The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

Question

Use the table for the question(s)below.
Consider the following expected returns,volatilities,and correlations:
 
-The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

Quizplus · Accepted Answer

To find the volatility of a portfolio with two assets, we use the following formula:

Portfolio Volatility = √(w1^2 x σ1^2 + w2^2 x σ2^2 + 2 x w1 x w2 x ρ x σ1 x σ2)

where:
w1 = weight of asset 1
w2 = weight of asset 2
σ1 = volatility of asset 1
σ2 = volatility of asset 2
ρ = correlation between asset 1 and asset 2

In this case, we are equally invested in Duke Energy and Microsoft, so w1 = 0.5 and w2 = 0.5.

Using the table, we can see that the volatility of Duke Energy is 12%, the volatility of Microsoft is 17%, and the correlation between the two is 0.5.

Plugging in the values, we get:

Portfolio Volatility = √(0.5^2 x 0.12^2 + 0.5^2 x 0.17^2 + 2 x 0.5 x 0.5 x 0.5 x 0.12 x 0.17)
                     = √(0.00576 + 0.014225 + 0.00612)
                     ≈ 0.1174 or 11.74%

Therefore, the answer is B) 9%, which is the closest option.

Use the Table for the Question(s)below