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Suppose 2 assets are jointly normally distributed with mean asset 1 = m1, mean asset 2...

Suppose 2 assets are jointly normally distributed with mean asset 1 = m1, mean asset 2 = m2, standard deviation asset 1 = s, st. dev. asset 2 = s and correlation between asset 1 and 2 = r12. Note that the standard deviations of the two assets are the same. What is the portfolio standard deviation if we invest half of our wealth in asset 1 and half of our wealth in asset 2?

  • A. .5*s^2+.5*s^2+2*r12*s^2
  • B. .5*s+.5*s+ r12*s^2
  • C. (.25+.25+r12)*s^2
  • D. s*sqrt(.25+.25+.50*r12)
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Answer #1

The portfolio for mulla Standard deviation is computed using gun below! poulfolio = r wir sint w, zona + 2 wiwa Paris whue w,= cost t (0.5) s² + (0.57.5²x712 = Sx 500.5)? + 10.53% +(0.5)*8112 Sport Jolio. F sx 10.25 +0.257 0.5412 The fove, CS Scanned

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