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Chrome File Edit View History Bookmarks People Window Help 99%)." Tue 11:31 AM a . Sample Final Final CSecure https://ccle.ucla.edu/mod/quiz/attempt.php?attempt 2027943&page; 15 Homework 3 xHomework 4 Net Present Value Calculator x UCLA CCLE I Shared System Ncod p CHAN, CHING Y My sites 18W-MGMT130A-2 Final Final Control Panel Question 16 Not yet Quiz navigation Suppose you own a portfolio with two securities. Security A has an expected return o 3.4% and a standard deviation of S % per ear. Security has an expected return of 9.3% and a standard deviation of 38% per year. Considering that your portfolio s composed of 35% of Security A and 65% of Security B, and that the correlation between their returns is.25, what is the standard deviation of your portfolio? of 134% anda orside | 112 | 31|415 8 910 11 12 13 14ob souo returns is 2s, hat ise est o of38%pery a Poins outof 8 9 10 11 12 13 14 15 16 12 18 19 20 21 22 23 Finish attempt. Select one: Flag question a 44.30% Ob, 35.16% c. 8.53% d. 9.06% e, 12.35% Previous page Next page © 2018 UC Regents ttps://ccie.uca.edu/modjquiz/attempt.php?attempt-2027943&page-16;# Contact About Privacy Copyright UCLAlinks | UCLA Registrar MyUCLA Disability Couns/PsychSvc (CAPS)

Explanation / Answer

Answer:

A = weight of Security A in the portfolio = 35%
B = weight of Security B in the portfolio = 65%
A = standard deviation of Security A = 56%
B = standard deviation of Security B = 38%
AB = correlation coefficient between returns on Security A and Security B = 0.25

Variance of Portfolio, 2P = w2A*2A + w2B*2B + 2* wA*A* wB*B*AB
Variance of Portfolio, 2P = 0.35^2*0.56^2 + 0.65^2*0.38^2 + 2*0.35*0.56*0.65*0.38*0.25
Variance of Portfolio, 2P = 0.123631

Standard Deviation of Portfolio, P = (0.123631)^(1/2)
Standard Deviation of Portfolio, P = 0.3516
Standard Deviation of Portfolio, P = 35.16%

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