Question

Use the table below to correctly complete the following sentence. A portfolio that has invested equal amounts of money in stocks C and 11% D, will have an expected return 6%, and a standard deviation Expected Return St Dev of Returns 4% Stock A Stock B Stock C Stock D 6% 6% 9% 13% 2% 10% Select one: a. Equal to; Equal to b. Equal to; Smaller than C. Smaller than; smaller than d. Smaller than; equal to

Answer 1

Formula to be used

Reported quturom postfoto - We # Els & wet. E(B). Std. deviator of Portpales (se) = sqrt (62)

Weight of Stock C and D = 50%

Expected Return = ( 50% * 2%) + (50% * 10%)

Expected Return = 6%

Variance = [ (50%)^² * (9%)^² ] + [ (50%)^² * (13%)^² ]  

Variance = 0.002025 + 0.004225

Variance = 0.00625

.

Standard Deviation = sqrt (variance)

Standard Deviation = sqrt ( 0.00625)

Standard Deviation = 7.91%

Hence, correct option is Option B

Expected retrun Equal To 6% and Standard deviation smaller than 11%