A Portfolio Has 50% of Its Funds Invested in Security

question 77

Multiple Choice

A portfolio has 50% of its funds invested in Security One and 50% of its funds invested in Security Two.Security One has a standard deviation of 8%.Security Two has a standard deviation of 10%.The securities have a coefficient of correlation of .5.Which of the following values is closest to portfolio variance?

• A).0025
• B).0061
• C).0095
• D).0102
• E)One must have covariance to calculate expected value.

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Definitions:

Standard Deviation

A measure of the dispersion or variation in a distribution or set of data, widely used in statistics to gauge the volatility of financial returns.

Equally-weighted Portfolio

An investment portfolio in which all assets are allocated the same proportion of total investment.

Total Risk

The complete range of risk associated with an investment, including both systematic and unsystematic risk.

Risk Premium

The additional return an investor demands for taking on a higher risk compared to a risk-free asset, indicating the compensation for bearing extra risk.