Instruction 16.2:
Use the information to answer the following question(s).
A U.S. investor is considering a portfolio consisting of 60% invested in the U.S. equity index fund and 40% invested in the British equity index fund. The expected returns for the funds are 10% for the U.S. and 8% for the British, standard deviations of 20% for the U.S. and 18% for the British, and a correlation coefficient of 0.15 between the U.S. and British equity funds.
-Refer to Instruction 16.2. What is standard deviation of the proposed portfolio?
A) 38.00
B) 19.20
C) 19.00
D) 14.45

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 coefficient. Plugging in the values: √(0.6²*0.2² + 0.4²*0.18² + 2*0.6*0.4*0.2*0.18*0.15) = 14.45%.

Instruction 16.2: Use the Information to Answer the Following Question(s)