Exhibit 6-12
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{cc}
\text { Asset 1 } & \text { Asset 2 } \
\hline E\left(R_{1}\right)=.12 & E\left(R_{2}\right)=.16 \
E\left(\sigma_{1}\right)=.04 & E\left(\sigma_{2}\right)=.06
\end{array}$
-Refer to Exhibit 6-12. Calculate the expected return and expected standard deviation of a two-stock portfolio when r?,? = -.60 and w? = .75.
A) .13 and .0024
B) .13 and .0455
C) .12 and .0585
D) .12 and .5585
E) .13 and .6758

Question

Quizplus · Accepted Answer

The correct answer is A because the expected return of the portfolio is the weighted average of the expected returns of the two assets, and the expected standard deviation of the portfolio is the square root of the variance of the portfolio, which is the weighted average of the variances of the two assets plus the covariance between the two assets.

Exhibit 6-12 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Exhibit 6-12
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)