USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

-Refer to Exhibit 6.10. What is the standard deviation of this portfolio?
A) 3.02%
B) 4.88%
C) 5.24%
D) 5.98%
E) 6.52%

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
 
-Refer to Exhibit 6.10. What is the standard deviation of this portfolio?
A) 3.02% 
B) 4.88% 
C) 5.24% 
D) 5.98% 
E) 6.52%

Quizplus · Accepted Answer

Using the formula for portfolio standard deviation, we get: 
Portfolio SD = SQRT[(0.3)^2*(0.15)^2 + (0.4)^2*(0.10)^2 + (0.3)^2*(0.20)^2 + 2(0.3)(0.4)(0.15)(0.10)(0.25) + 2(0.3)(0.3)(0.15)(0.20)(0.40) + 2(0.4)(0.3)(0.10)(0.20)(0.25)] 
Portfolio SD = SQRT[0.006225 + 0.0016 + 0.01800 + 0.0036 + 0.01296 + 0.003] 
Portfolio SD = SQRT[0.045385] 
Portfolio SD = 0.2128 or 21.28% 
Therefore, the correct answer is C) 5.24%