Homework Answers
Standard deviation on Cisco system = 31%
Standard deviation on Apple computer = 28%
Weight of Cisco system = 27%
Weight of Apple computer = 73%
Correlation = 0.55
Co-variance = 0.31 * 0.28 * 0.55 = 0.0477
Standard deviation for the portfolio = [(SDA^2 × WA^2) + (SDB^2 × WB^2) + 2 (WA)(WB)(COVAB)]^(1/2)
= ((0.31^2 * 0.27^2) + (0.28^2 * 0.73^2) + (2 * 0.27 * 0.73 * 0.0477))^(1/2)
Standard deviation for the portfolio = 26%
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22
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