You Have Decided to Create a Portfolio with Two Assets

question 17

Multiple Choice

You have decided to create a portfolio with two assets: stock X and stock Y.You invest 20% of your funds in X and 80% of your funds in stock Y.The standard deviation of X is 30% and the standard deviation of Y is 40%.The two stocks have a correlation coefficient of - 0.5.What is the portfolio's standard deviation?

• A) 30.00%
• B) 29.46%
• C) 33.24%
• D) 36.92%
• E) 40.00%

---

Definitions:

Consumption Timing

The decision-making process regarding when to spend money on goods and services, balancing current consumption against future needs.

Allocation Of Risk

Allocation of Risk involves distributing exposure to financial risks among various participants or financial instruments to manage potential losses more effectively.

Ownership And Control

Refers to the legal and operational authority over assets or business, which may not always coincide, especially in corporations with dispersed shareholders.

Commercial Banks

Financial institutions that provide a variety of services, including deposit accounts, loans, and other financial products, to businesses and individuals.