You have a portfolio which is comprised of 30% of Stock A and 70% of Stock B. What is the portfolio standard deviation?
$\begin{array}{lllr}
\text { State of the Economy } & \text { Probability } &\text {E(R)}_{A}&\text { E(R)}_{B}\
&&30\%&70\%\
\
\text { Boom }&.15&20\%&14\%\
\text { Normal } & .75 & 11\% & 9 \% \
\text { Recegsion } & .10& -23 \% & -5 \%
\end{array}$

A)4.00%
B)5.56%
C)6.68%
D)6.82%
E)7.47%

Question

You have a portfolio which is comprised of 30% of Stock A and 70% of Stock B. What is the portfolio standard deviation?
$\begin{array}{lllr}
\text { State of the Economy } & \text { Probability } &\text {E(R)}_{A}&\text { E(R)}_{B}\
&&30\%&70\%\
\
\text { Boom }&.15&20\%&14\%\
\text { Normal } & .75 & 11\% & 9 \% \
\text { Recegsion } & .10& -23 \% & -5 \%
\end{array}$

A)4.00%
B)5.56%
C)6.68%
D)6.82%
E)7.47%

Quizplus · Accepted Answer

The portfolio standard deviation is calculated using the weighted average of the variances and covariances of the stocks. Given the probabilities and expected returns, the variance of the portfolio is calculated, and the square root of this variance gives the standard deviation, which is approximately 6.68%.

You Have a Portfolio Which Is Comprised of 30% of Stock