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NEW QUESTION: 1
A and B are two stocks with normally distributed returns. The returns for stock A have a mean of 5% and a standard deviation of 20%. Stock B has a mean of 3% and standard deviation of 5%. Their correlation is -0.6.
What is the mean and volatility of a portfolio which holds stocks A and B in the ratio 6:4?
A. 4.2% and 10.92%
B. 4.2% and 14%
C. 4.2% and 1.19%
D. 4% and 10.92%
Answer: A
Explanation:
Explanation
The mean can be calculated quite easily as a weighted average, and in this case it is 0.6*5% + 0.4*3% = 4.2%.
The variance can be calculated with the formula for portfolio variance as = (0.6