Calculate the Risk (Standard Deviation) of the Following Two-Security Portfolio

question 59

Essay

Calculate the risk (standard deviation) of the following two-security portfolio if the correlation coefficient between the two securities is equal to 0.5.
$\begin{array}{lcc} & \underline { \text { Variance } }&\underline { \text { Weight (in the portfolio) }} \\ \text { Security A } & 10 & 0.3 \\\text { Security B } & 20 & 0.7\end{array}$
A) 17.0 percent
B) 5.4 percent
C) 2.0 percent
D) 3.7 percent

• A) 17.0 percent
• B) 5.4 percent
• C) 2.0 percent
• D) 3.7 percent

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Definitions:

Monthly Depreciation

The portion of a fixed asset's cost allocated as an expense over a single month, reflecting the asset's usage and loss of value.

Cash Balance

The total amount of cash or cash equivalents a company or individual holds at any given time.

Merchandising Firm

A business that purchases finished goods for the purpose of resale to consumers without altering the condition of the goods.

Merchandise Inventory

Goods or products that a company holds with the intention of selling them to customers as part of its business operations.