Std of the expected return

Stock A has an expected return of 6% and a variance of .03. Stock B has an expected return of 12% and a variance of .09. the correlation between the stock returns is 0.65 … what will be the standard deviation of the expected return of an equally weighted portfolio in two stocks ? thanks i get variance 0.355 so std 0.6

I don’t have a calculator but it should just be: {(.5^2)(.03)+(.5^2)(.09)+(.5)(.5)(.03^.5)(.09^.5)(.65)}^.5

"standard deviation of the expected return " = 0 Expected return is a parameter with no standard deviation

Joey I understand what you mean but do you think they would make up such a question or is it just bad wording?

Probably Schweser who has no concept of anything quant.

Basically you are saying that expected return would be average of returns and for a population there is one and just one mean?

Expected return for the portfolio is simply 0.5*6% + 0.5*12% = 9%. There is no randomness in that calculation, thus there is no variability, thus no standard deviation. They probably mean what is the standard deviation of the portfolio which is something like Niblita’s answer but there are a few numbers mized up there. Var§ = 0.5*0.03 + 0.5*0.09 + 2*0.5*0.5*Cov(A, B) Cov(A,B) = 0.65*Sqrt(0.03*0.09) I do have a calculator but dont feel like using it and my coffee hasn’t kicked in enough otherwise.

Don’t you need to square the weights in the first two terms of the equation?

Yes you do. Oops.

JoeyDVivre Wrote: ------------------------------------------------------- > Yes you do. Oops. always… Portfolio Variance = w2A*ó2(RA) + w2B*ó2(RB) + 2*(wA)*(wB)*Cov(RA, RB) - Dinesh S