An investor can design a risky portfolio based on two shares, A and B. The standard deviation of return on Share A is 20% while the standard deviation on Share B is 15%. The correlation coefficient between the return on A and B is 0%. The standard deviation of return on the minimum variance portfolio is ________.
A)0%
B)6%
C)12%
D)17%

Question

Quizplus · Accepted Answer

The standard deviation of the minimum variance portfolio is calculated using the formula: sqrt((wA^2 * σA^2) + (wB^2 * σB^2) + (2 * wA * wB * σA * σB * ρAB)), where wA and wB are the weights of shares A and B, σA and σB are their standard deviations, and ρAB is the correlation coefficient. With ρAB = 0, the formula simplifies, and the minimum variance portfolio standard deviation is 12%.

An Investor Can Design a Risky Portfolio Based on Two