Homework Answers
Investment in X = w1 = 0.60, Investment in Y = w2 = 0.40
Correlation = r12 = 0.35
Standard Deviation of X = σ1 = 20%
Standard Deviation of Y = σ2 = 16%
Standard Deviation = √ [w12σ12 + w22σ22 + 2w1w2σ1σ2r12] = √ [0.6020.202 + 0.4020.162 + 2*0.60*0.40*0.20*0.16*0.35] = 0.1545 or 15.45%
Hence, correct answer is (A) Less than 18.4%
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