Question

Question 13 1 pts Standard deviation of the returns for Stock Ais 0.85. Whereas returns for Stock B have a standard deviation of 0.55. The covariance between the stocks' returns is 0.30. The variance of a portfolio composed of 40% of Stock A and 60% of Stock Bis 0.3464 0.3796 0.3685 0.3538 0.3759

Answer 1

variance of portfolio = wA^2 * rA^2 + wB^2 * rB^2 + 2 * wA * wB * covariance

wA = weight of stock A

wB = weight of stock B

rA = standard deviation of stock A

rB = standard deviation of stock B

Variance of portfolio

= 0.4^2 * 0.85^2 + 0.6^2 * 0.55^2 + 2 * 0.4 * 0.6 * 0.3

= 0.3685