What Is the Standard Deviation of a Portfolio of Two

question 40

Multiple Choice

What is the standard deviation of a portfolio of two stocks given the following data: Stock A has a standard deviation of 18%. Stock B has a standard deviation of 14%. The portfolio contains 40% of stock A, and the correlation coefficient between the two stocks is -.23.

• A) 9.7%
• B) 12.2%
• C) 14%
• D) 15.6%

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Definitions:

Simple Linear Regression Model

A statistical model that describes the linear relationship between a single independent variable and a dependent variable using a straight line.

Independent Variable

The variable that is manipulated or changed in an experiment to observe its effect on the dependent variable.

Single Dependent Variable

The outcome variable in a study or experiment that is thought to depend on or be influenced by one or more independent variables.

Variation

The measure of the spread of data points in a data set from each other and from their mean value.