Tyler Trucks stock has an annual return mean and standard deviation of 8 percent

Question

Tyler Trucks stock has an annual return mean and standard deviation of 8 percent and 27 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 19.0 percent and 63 percent, respectively. Your portfolio allocates equal funds to Tyler Trucks stock and Michael Moped Manufacturing stock. The return correlation between Tyler Trucks and Michael Moped Manufacturing is .5. What is the smallest expected loss for your portfolio in the coming month with a probability of 1.0 percent? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Returns Standard deviation Tyler trucks 8% 27% Michael Moped 19% 63% Standard deviation of portfoilio is squareroot of (w1^2 * sigma1^2 + w2^2*sigma2^2 + 2*w1*w2*sigma1*sigma2*correlation) 16.00% SD 40.00% Expected loss is Z*SIGMA 2.33*SIGMA OF PORTFOLIO,2.33 IS Z VALUE FOR 99% CONFICENCE 0.931927185

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