What is the variance of a three-stock portfolio that produced returns of 20 percent, 25 percent and 30 percent?
A)0.17%
B)0.33%
C)0.50%
D)0.10%

Question

Quizplus · Accepted Answer

The variance of a portfolio is the weighted average of the variances of the individual stocks, where the weights are the proportions of the portfolio invested in each stock. In this case, the portfolio is invested equally in three stocks, so the variance of the portfolio is the average of the variances of the three stocks. The variance of a stock is the square of the standard deviation, so the variance of the portfolio is the square of the standard deviation of the portfolio. The standard deviation of the portfolio is the square root of the variance of the portfolio. The variance of the portfolio is 0.17%, so the standard deviation of the portfolio is 0.41%.

What Is the Variance of a Three-Stock Portfolio That Produced