Keep getting the wrong answer for some reason… Two assets are perfectly positively correlated If 30 percent of an investor’s funds were put in the asset with a standard deviation of 0.3 and 70 percent were invested in an asset with a standard deviation of 0.4, what is the standard deviation of the portfolio? A) 0.370. B) 0.151. C) 0.244. D) 0.426.

.3^2 * .3 ^2 + .7^2 * .4 ^2 + 2 (1) (.3) (.7) (.3) (.4) = .0081 + .0784 + .0504 = .1369 Therefore std dev = .37 A

Ans = SQRT[(0.3)^2 * (0.3)^2 + (0.7)^2 * (0.4)^2 + 2*(0.3)(0.7)(0.3)(0.4)] = 0.37 = A - Dinesh S

you guys are fast. I got A as well, there’s really no tricks to this prob.

i realise what i was doing wrong. skipped a 0 from 0.0081! thanks guys!

A

.3*.3+.7*.4 = .37

Don’t make this harder than it is…like maratikus put above, if there are no diversification benefits (read correlation of +1) than it is just a weighted average of the components SDs. it also means that the last term in the equation used for a two asset portfolio is moot.

Yep, of course… thanks Maratikus a^2 + b^2 + 2.a.b = (a+b)^2 so sqrt ((a+b)^2) = a + b where a = w1*sigma1 b = w2 * sigma 2