An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is ________.
A) 0%
B) 5%
C) 7%
D) 20%

Question

Quizplus · Accepted Answer

W_a= 11eaaae8_8b67_2ae0_a4b8_a5f4b197b21c_TB6474_00 W_a = 0 σ = 11eaaae8_8b67_2ae1_a4b8_278125696636_TB6474_00 = .05 Since W_A= 0 and W_B = 1, the risky portfolio's standard deviation is the same as asset B's standard deviation.

An Investor Can Design a Risky Portfolio Based on Two