What is the standard deviation of a portfolio which is comprised of $4,500 invested in stock S and $3,000 in stock T?
A)1.4%
B)1.9%
C)2.6%
D)5.7%
E)7.2%

Question

What is the standard deviation of a portfolio which is comprised of $4,500 invested in stock S and $3,000 in stock T? 
A)1.4% 
B)1.9% 
C)2.6% 
D)5.7% 
E)7.2%

Quizplus · Accepted Answer

E(r)_Boom = [$4,500 F1F1F1S1F1F1F10 ($4,500 + $3,000)F1F1F1S1F1F1F10 .12)] + [$3,000 F1F1F1S1F1F1F10 ($4,500 + $3,000)F1F1F1S1F1F1F10 .04)= .072 + .016 = .088E(r)_Normal = [$4,500 F1F1F1S1F1F1F10 ($4,500 + $3,000)F1F1F1S1F1F1F10 .09)] + [$3,000 F1F1F1S1F1F1F10 ($4,500 + $3,000)F1F1F1S1F1F1F10 .06)= .054 + .024 = .078E(r)_Bust = [$4,500 F1F1F1S1F1F1F10 ($4,500 + $3,000)F1F1F1S1F1F1F10 .02)] + [$3,000 F1F1F1S1F1F1F10 ($4,500 + $3,000)F1F1F1S1F1F1F10 .09)= .012 + .036 = .048E(r)_Portfolio = (.10 F1F1F1S1F1F1F10 .088)+ (.65 F1F1F1S1F1F1F10 .078)+ (.25 F1F1F1S1F1F1F10 .048)= .0088 + .0507 + .012 = .0715Var_Portfolio = [.10 F1F1F1S1F1F1F10 (.088 - .0715)²] + [.65 F1F1F1S1F1F1F10 (.078 - .0715)²] + [.25 F1F1F1S1F1F1F10 (.048 - .0715)²] = .000027225 + .000027463 + .000138063 = .000192751Std dev = F1F1F1S1F1F1F10.000192751 = .01388 = 1.4%

What Is the Standard Deviation of a Portfolio Which Is