Suppose Stock M has an expected return of 10%, a standard deviation of 15%, and a Beta of 0.6 while Stock N has an expected return of 20%, a standard deviation of 25% and a beta of 1.04, and the correlation between the two stocks is 0.50. What is the standard deviation for a portfolio with 80% invested in Stock M and 20% invested in Stock N?
A) 13.2%
B) 15.1%
C) 17.3%
D) 21.5%

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio is calculated using the formula: √(w₁²σ₁² + w₂²σ₂² + 2w₁w₂σ₁σ₂ρ), where w₁ and w₂ are the weights, σ₁ and σ₂ are the standard deviations, and ρ is the correlation. Plugging in the values: √(0.8²(0.15)² + 0.2²(0.25)² + 2(0.8)(0.2)(0.15)(0.25)(0.50)) = 15.1%.

Suppose Stock M Has an Expected Return of 10%, a Standard