There are two assets, A and B, with a standard deviation of 10 and 15, respectively.If the correlation coefficient between the two assets is 0.5, then a portfolio that consists of 0.4 of A and 0.6 of B has a standard deviation of
A)11.53
B)13.00
C)15.00
D)18.02
E)20.00

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio consisting of two assets can be calculated using the formula: $\sigma_p = \sqrt{w_A^2\sigma_A^2 + w_B^2\sigma_B^2 + 2w_Aw_B\sigma_A\sigma_B\rho}$, where $w_A$ and $w_B$ are the weights of assets A and B in the portfolio, $\sigma_A$ and $\sigma_B$ are the standard deviations of assets A and B, and $\rho$ is the correlation coefficient between the two assets. Plugging in the given values: $\sigma_p = \sqrt{0.4^2 \times 10^2 + 0.6^2 \times 15^2 + 2 \times 0.4 \times 0.6 \times 10 \times 15 \times 0.5}$ = 11.53.

There Are Two Assets, a and B, with a Standard