Consider the following expected returns, volatilities, and correlations: The volatility of a portfolio that is equally invested in Wal-Mart and Duke Energy is closest to ________.
A) 4.0%
B) 0.7%
C) 6.7%
D) 20.1%

Question

Consider the following expected returns, volatilities, and correlations:  The volatility of a portfolio that is equally invested in Wal-Mart and Duke Energy is closest to ________.
A) 4.0% 
B) 0.7% 
C) 6.7% 
D) 20.1%

Quizplus · Accepted Answer

C) Var(R_p) = w₁²^SD(R₁) + w₂²^SD(R₂) + 2X₁X₂Corr(R₁,R₂)SD₁SD₂ ₌0.5²(0.12)² + 0.5²(0.06)² + 2(0.5)(0.5)(0)(0.12)(0.06) = 0.0045 stdev = 11ea84dc_f534_7a35_9a63_45b53664afbc_TB1316_11_TB1316_11 = 0.06708204

Consider the Following Expected Returns, Volatilities, and Correlations: the Volatility