Assume the standard deviation of the U.S. market portfolio is 1the standard deviation of the non?U.S. portion of the world portfolio is 1and the correlation between the U.S. and non?U.S. market portfolios is .4Suppose you invest 25% of your money in the U.S. stock market and the other 75% in the non?U.S. portfolio. What is the standard deviation of your portfolio?

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Quizplus · Accepted Answer

The standard deviation of the portfolio is calculated using the formula: √(w1²σ1² + w2²σ2² + 2w1w2σ1σ2ρ), where w1 and w2 are the weights, σ1 and σ2 are the standard deviations, and ρ is the correlation. Plugging in the values: √(0.25²*1² + 0.75²*1² + 2*0.25*0.75*1*1*0.4) = √(0.0625 + 0.5625 + 0.15) = √0.775 = 0.88 or 15.5%.

Assume the Standard Deviation of the U