What is the variance of a portfolio whose weighting is equally divided between four assets with low correlations and standard deviations of 5%, 15%, 20% and 30%?
A) 17.50
B) 1.75
C) .70
D) .10

Question

Quizplus · Accepted Answer

The variance of a portfolio is the weighted average of the variances of the individual assets, where the weights are the squared proportions of the portfolio invested in each asset. In this case, the portfolio is equally divided between four assets, so the weights are each 1/4. The variance of the portfolio is therefore:(1/4) * (0.05^2) + (1/4) * (0.15^2) + (1/4) * (0.20^2) + (1/4) * (0.30^2) = 0.0175The variance of the portfolio is therefore 1.75%.

What Is the Variance of a Portfolio Whose Weighting Is