A portfolio has 30% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 35% and 30%, respectively, and the correlation between IBM and MSFT is 0.5. What is the standard deviation of the portfolio?
A) 23.61%
B) 27.78%
C) 31.95%
D) 30.56%

Question

Quizplus · Accepted Answer

B) Use the formula for variance of a portfolio:
Take the square root of variance to get standard deviation. 11ea84dc_f532_0923_9a63_0bd196e29aa6_TB1316_00_TB1316_00 square root of 0.077175 to get standard deviation = 27.78%.

A Portfolio Has 30% of Its Value in IBM Shares