What Is the Standard Deviation of an Equally Weighted Portfolio

question 45

Multiple Choice

What is the standard deviation of an equally weighted portfolio of two stocks with a covariance of 0.009, if the standard deviation of the first stock is 15% and the standard deviation of the second stock is 20%?

• A) 2.0%
• B) 2.1%
• C) 7.8%
• D) 14.2%
• E) 14.7%

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Definitions:

Natural Monopoly

A market condition where a single firm can supply a product or service at a lower cost than any potential competitor, often due to economies of scale.

Cheaper Service

A service offered at a lower price relative to other similar services, emphasizing cost-effectiveness.

Perfect Competitor

A theoretical market structure where many firms sell identical products, entry and exit are easy, and no single buyer or seller can affect the market price.

Average Total Cost

The total cost of production divided by the number of units produced, representing the cost per unit of output.