What is the standard deviation of a portfolio that is invested 40% in stock Q and 60% in stock R?
A)0.7%
B)1.4%
C)2.6%
D)6.8%
E)8.1%

Question

What is the standard deviation of a portfolio that is invested 40% in stock Q and 60% in stock R? 
A)0.7% 
B)1.4% 
C)2.6% 
D)6.8% 
E)8.1%

Quizplus · Accepted Answer

E(r)_Boom = (.40 F1F1F1S1F1F1F10 .18)+ (.60 F1F1F1S1F1F1F10 .09)= .072 + .054 = .126E(r)_Normal = (.40 F1F1F1S1F1F1F10 .09)+ (.60 F1F1F1S1F1F1F10 .05)= .036 + .03 = .066E(r)_Portfolio = (.25 F1F1F1S1F1F1F10 .126)+ (.75 F1F1F1S1F1F1F10 .066)= .0315 + .0495 = .081Var_Portfolio = [.25 F1F1F1S1F1F1F10 (.126 - .081)²] + [.75 F1F1F1S1F1F1F10 (.066 - .081)²] = .00050625 + .00016875 = .000675Std dev = F1F1F1S1F1F1F10.000675 = .02598 = 2.6%

What Is the Standard Deviation of a Portfolio That Is