What is the portfolio variance if 30% is invested in stock S and 70% is invested in stock T?
A).002220
B).004056
C).006224
D).008080
E).098000

Question

What is the portfolio variance if 30% is invested in stock S and 70% is invested in stock T? 
A).002220 
B).004056 
C).006224 
D).008080 
E).098000

Quizplus · Accepted Answer

E(r)_Boom = (.30 F1F1F1S1F1F1F10 .12)+ (.70 F1F1F1S1F1F1F10 .20)= .036 + .14 = .176E(r)_Normal = (.30 F1F1F1S1F1F1F10 .06)+ (.70 F1F1F1S1F1F1F10 .04)= .018 + .028 = .046E(r)_Portfolio = (.40 F1F1F1S1F1F1F10 .176)+ (.60 F1F1F1S1F1F1F10 .046)= .0704 + .0276 = .098Var_Portfolio = [.40 F1F1F1S1F1F1F10 (.176 - .098)²] + [.60 F1F1F1S1F1F1F10 (.046 - .098)²] = .0024336 + .0016224 = .004056

What Is the Portfolio Variance If 30% Is Invested in Stock