A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 35%, while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is .45. Stock A comprises 40% of the portfolio, while stock B comprises 60% of the portfolio. The standard deviation of the return on this portfolio is ________.
A) 23%
B) 19.76%
C) 18.45%
D) 17.67%

Question

Quizplus · Accepted Answer

σ²_p = (.40²)(.35²) + (.60²)(.15)² + (2)(.4)(.6)(.35)(.15)(.45) σ²_p = .039046 σ_p= 19.76%

A Portfolio Is Composed of Two Stocks, a and B