Question

Use the table for the question(s) below.

Consider the following expected returns, volatilities, and correlations:

Stock	Expected Return	Standard Deviation	Correlation with Duke Energy	Correlation with Microsoft	Correlation with Wal-Mart
Duke Energy	14%	6%	1.0	-1.0	0.0
Microsoft	44%	24%	-1.0	1.0	0.7
Wal-Mart	23%	14%	0.0	0.7	1.0

The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

		6%
		9%
		8%
		11%

Answer 1

Volatility or standard deviation of a portfolio is mathematically represented as:

w1 = w2 = 50%

Standard deviation or Volatility= 9%