Question

Create a portfolio using the four stocks and information below:

	Expected Return	Standard Deviation	Weight in Portfolio
Stock A	21.00%	16.00%	17.00%
Stock B	34.00%	33.00%	22.00%
Stock C	33.00%	21.00%	16.00%
Stock D	27.00%	27.00%	45.00%
----------------------	----------------------	----------------------	----------------------
Correlation (A,B)	0.4400	----------------------	----------------------
Correlation (A,C)	0.3300	----------------------	----------------------
Correlation (A,D)	0.9400	----------------------	----------------------
Correlation (B,C)	0.7000	----------------------	----------------------
Correlation (B,D)	0.0200	----------------------	----------------------
Correlation (C,D)	0.6400	----------------------	----------------------

all answered right exept the last two

(Do not round intermediate calculations. Record your answers in decimal form and round your answers to 4 decimal places. Ex. x.xxxx)

What is the variance of A? 0.0256

What is the variance of B? 0.1089

What is the variance of C? 0.0441

What is the variance of D? 0.0729

What is the Correlation (A,A)? 1

What is the Correlation (B,B)? 1

What is the Correlation (C,C)? 1

What is the Correlation (D,D)? 1

What is the Covariance (A,A)? 0.0256

What is the Covariance (A,B)? 0.02323

What is the Covariance (A,C)?0.0110

What is the Covariance (A,D)? 0.0406

What is the Covariance (B,A)?0.02323

What is the Covariance (B,B)? 0.1089

What is the Covariance (B,C)? 0.04851

What is the Covariance (B,D)? 0.0018

What is the Covariance (C,A)?0.0110

What is the Covariance (C,B)? 0.04851

What is the Covariance (C,C)?0.0441

What is the Covariance (C,D)?0.03629

What is the Covariance (D,A)?0.0406

What is the Covariance (D,B)?0.0018

What is the Covariance (D,C)?0.03629

What is the Covariance (D,D)?0.0729

What is the expected return on the portfolio above?0.2848

What is the variance on the portfolio above?

What is the standard deviation on the portfolio above?

Answer 1

Standard Deviation of portflio= Square Root of Variance of Portfolio (refer below for Variance)

=0.198612

Variance of portfolio= Sum of (Wt² * S.D.) (for all 4 stocks A, B, C, D) + Sum of (2 * Wt_A * Wt_B * Cov_A,B )(for all 6 pair of stocks i.e. A and B, A and C, A and D, B and C, B and D, C and D)

= 0.0394468

(0.17*0.17*0.0256)+(0.22*0.22*0.1089)+(0.16*0.16*0.0441)+(0.45*0.45*0.0729)+ 2*(0.17*0.22*0.02323)+ 2*(0.17*0.16*0.0110)+ 2*(0.17*0.45*0.0406)+ 2*(0.22*0.16*0.04851)+ 2*(0.22*0.45*0.0018)+ 2*(0.16*0.45*0.03629)