A portfolio has 45% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 33% and 35%, respectively, and the correlation between IBM and MSFT is 0. What is the standard deviation of the portfolio?
A) 19.45%
B) 27.96%
C) 34.04%
D) 24.31%

Question

Quizplus · Accepted Answer

D) Use the formula for variance of a portfolio: Take the square root of variance to get standard deviation. (0.45)² × (0.33)² + (0.55)² × (0.35)² + 2 × 0.33 × 0.35 × 0.45 × 0.55 × 0 = 0.0591085; square root of 0.0591085 to get 11ea84dc_f532_5744_9a63_f7b7ad38049a_TB1316_00_TB1316_00

A Portfolio Has 45% of Its Value in IBM Shares