Assume the standard deviation of the U. S. market portfolio is 18.2%, the standard deviation of the non-U. S. portion of the world portfolio is 17.1%, and the correlation between the U. S. and non-U. S. market portfolios is. 47. Suppose you invest 25% of your money in the U. S. stock market and the other 75% in the non-U. S. portfolio. What is the standard deviation of your portfolio?

a) 16.7% b) 15.5% c) 17.1% d) 18.6%

Question

Business

Medina

9 September, 05:35

Assume the standard deviation of the U. S. market portfolio is 18.2%, the standard deviation of the non-U. S. portion of the world portfolio is 17.1%, and the correlation between the U. S. and non-U. S. market portfolios is. 47. Suppose you invest 25% of your money in the U. S. stock market and the other 75% in the non-U. S. portfolio. What is the standard deviation of your portfolio?

a) 16.7% b) 15.5% c) 17.1% d) 18.6%

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Answers (1)

Know the Answer?

Leonidas Webb · Answer 1

b) 15.5%

Explanation:

Let U. S. market portfolio be represented by variable "U"

And let Non - U. S. market portfolio be represented by variable "N"

σP = SQRT [ w²U*σ²U + w²N*σ²N + 2*wS * wN*σU*σN*correl. ]

whereby,

w = weight of ...

σ² = variance of ...

σP=SQRT[0.25²*0.182² + 0.75²*0.171² + 2*0.25 * 0.75 * 0.182 * 0.171 * 0.47 ]

σP = SQRT[ 0.002070 + 0.0164 + 0.005485]

= SQRT (0.023955)

= 0.15477 or 15.5%

= As a percentage, the standard deviation of your portfolio is 15.5%