What is the variance of the returns on a portfolio comprised of $5,400 of stock G and $6,600 of stock H?
A).000709
B).000848
C).001475
D).001554
E).001568

Question

What is the variance of the returns on a portfolio comprised of $5,400 of stock G and $6,600 of stock H? 
A).000709 
B).000848 
C).001475 
D).001554 
E).001568

Quizplus · Accepted Answer

E(r)_Boom = [$5,400/($5,400 + $6,600)][0.21] + [($6,600/($5,400 + $6,600)][0 .13] = 0.166E(r)_Normal = [$5,400/($5,400 + $6,600)][0.13] + [$6,600/($5,400 + $6,600)][0.05] = 0.086E(r)_Portfolio = (0.36 × 0.166) + (0.64 × 0.086) = 0.1148Var_Portfolio = [0.36 × (0.166 - 0.1148)²] + [0.64 × (0.086 - 0.1148)²] = 0.001475

What Is the Variance of the Returns on a Portfolio