Question

You are investing for your retirement. You put 50% of your money into stock A, with...

You are investing for your retirement. You put 50% of your money into stock A, with an expected return of 10%, and a standard deviation of 20%. The rest is invested in stock B, with an expected return of 20%, and a standard deviation of 30%. The correlation coefficient between Stock A and Stock B is 0.2. What is the standard deviation of your retirement portfolio?

Group of answer choices

a. 19.6%

b. 3.85%

c. 25%

d. not enough information

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Answer #1

olution

Correct option-19.6%

Formula for standard deviation of a portfolio of 2 stocks is given below

Here

w1= Proportion invested in stock A

w2= Proportion invested in stock B

σ1= Standard deviation stock A

σ2= Standard deviation stock B

ρ1,2= CorRelation coffecient between Stock A and Stock B

Putting value in formula

Standard deviation of portfolio=SQRT(.5^2*.2^2+.5^2*.3^2+2*.5*.5*.2*.3*.2)

=0.196214

Thus the correct option is 19.6%

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