Security One has a standard deviation of 6. Security Two has a standard deviation of 12. The securities have a coefficient of correlation of .5. Which of the following values is closest to portfolio variance?
A) 81.
B) 90.
C) 27.
D) 6561.

Question

Quizplus · Accepted Answer

The portfolio variance is calculated using the formula: Var(P) = (w1^2 * σ1^2) + (w2^2 * σ2^2) + (2 * w1 * w2 * σ1 * σ2 * ρ). Assuming equal weights (w1 = w2 = 0.5), the variance is closest to 81.

Security One Has a Standard Deviation of 6