Corey plans to invest 75 percent of her funds in the common stock of B. Gamma In

Question

Corey plans to invest 75 percent of her funds in the common stock of B. Gamma Industries and 25 percent in K. Epsilon Company. The standard deviation of returns for Gamma is 8 percent and for Epsilon is 12 percent. The correlation between the returns for Gamma and Epsilon is -0.8.

4.02%
8.59%
7.37%
14%

Question 33. 33. Corey plans to invest 75 percent of her funds in the common stock of B. Gamma Industries and 25 percent in K. Epsilon Company. The standard deviation of returns for Gamma is 8 percent and for Epsilon is 12 percent. The correlation between the returns for Gamma and Epsilon is -0.8.

Determine the standard deviation of returns for Corey's portfolio. (Points : 4)

Explanation / Answer

Std Dev = (0.75^2*0.08^2 + 0.25^2*0.12^2 + 2*0.08*0.12*-0.8)^0.5

= (0.00162)^0.5

= 0.0402

= 4.02%

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