A portfolio has 25% of its funds invested in Security C and 75% of its funds inv

Question

A portfolio has 25% of its funds invested in Security C and 75% of its funds invested in Security D. Security C has an expected return of 8% and a standard deviation of 6%. Security D has an expected return of 10% and a standard deviation of 10%. The securities have a coefficient of correlation of 0.6. Which of the following values is closest to portfolio return and variance?

A portfolio has 25% of its funds invested in Security C and 75% of its funds invested in Security D. Security C has an expected return of 8% and a standard deviation of 6%. Security D has an expected return of 10% and a standard deviation of 10%. The securities have a coefficient of correlation of 0.6. Which of the following values is closest to portfolio return and variance?

Explanation / Answer

E(R) = .25(.08) + .75(.10) = .095 = 9.5%
Variance = .252(.06)2 + .752(.10)2 + 2(.25)(.75)(.06)(.60)(.10) = .0072

So , D) .095; .0072

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