Answered

Get detailed and accurate responses to your questions with IDNLearn.com. Get prompt and accurate answers to your questions from our experts who are always ready to help.

your portfolio has 20% invested in stock a and 80% invested in stock b. stock a has an expected return of 10% and a volatility of 15%. stock b has an expected return of 12% and volatility of 25%. the correlation between stock a and b is 0.3. what is the variance of your portfolio return?

Sagot :

Ayuneidn

Your portfolio of investment is: 20% stock A and 80% stock B. The portfolio variance of return is 0.0445

Portfolio variance is a risk assessment that describes how the aggregate actual returns of a portfolio's assets fluctuate over time.

Formula for the portfolio variance is:

Portfolio variance = w₁²σ₁² + w₂²σ₂² + 2w₁w₂Cov₁₂

Where:

w = weight of each asset

σ = standard deviation or volatility of each asset

Cov₁₂ = covariance between two assets.

Cov₁₂ = σ₁σ₂ x Corr₁₂

Parameters given in the problem:

w₁ = 20%

w₂ = 80%

σ₁ = 15%

σ₂ = 25%

Corr₁₂  = 0.3

Compute the covariance:

Cov₁₂ =  15% x 25% x 0.3 = 0.01125

Hence,

Portfolio variance = 0.2² x 0.15² + 0.8² x 0.25² + 2 x 0.2 x 0.8 x 0.01125

                             = 0.0445

Learn more about portfolio variance here:

https://brainly.com/question/29444771

#SPJ4

We are delighted to have you as part of our community. Keep asking, answering, and sharing your insights. Together, we can create a valuable knowledge resource. IDNLearn.com is your go-to source for dependable answers. Thank you for visiting, and we hope to assist you again.