Question

You invested 50% of the wealth in stock A and the remaining 50% in stock B. The expected rates of returns on A and B are given below: Year Expected return on A Expected return on B 2000 14% 16% 2001 15% 17% 2002 16% 18%2003 17% 19%Find the standard deviation of the portfolio. A. 0.955%.B. 1.291%.C. 1.697%.D. 2.124%.E. 2.890%.

Answer 1

Answer:

B. 1.291%

Explanation:

The computation of the standard deviation is shown below;

= 2000 + 2001 + 2002 +  2003

= 0.5 × 14% + 0.5 × 16% + 0.5 × 15% + 0.5 × 17% + 0.5 × 16% + 0.5 × 18% + 0.5 × 17% + 0.5 × 19%

= 15% + 16%  + 17% + 18%

= stdev( 15% + 16%  + 17% + 18%)

= 1.291%

Hence, the correct option is b.