Ask Question
16 October, 18:23

An investor is given the two investment alternatives (Assets A and B) with the following characteristics: Asset Expected Return Standard Deviation of Returns A 18.4 percent 16.5 percent B 10.8 percent 6.8 percent What is the standard deviation of a portfolio comprised of 60 percent of an investor's wealth invested in Asset A and 40 percent invested in Asset B if the correlation between the returns of A and Asset B are 0.70?

+5
Answers (1)
  1. 16 October, 21:24
    0
    12.00%

    Explanation:

    As per the given question the solution of standard deviation of a portfolio is provided below:-

    Standard deviation of a portfolio = √ (Standard deviation of Product 1) ^2 * (Weight 1) ^2 + Standard deviation of Product 2) ^2 * (Weight 2) ^2 + 2 * Standard deviation of product 1 * Standard deviation of product 2 * Weight 1 * Weight 2 * Correlation

    = √ (0.165^2 * 0.6^2) + (0.068^2 * 0.4^2) + (2 * 0.6 * 0.4 * 0.165 * 0.068 * 0.7)

    = √0.009801 + 0.0007398 + 0.00376992

    = √0.01431076

    = 0.119628592

    or

    = 12.00%

    So, we have calculated the standard deviation of a portfolio by using the above formula.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “An investor is given the two investment alternatives (Assets A and B) with the following characteristics: Asset Expected Return Standard ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers