Answer:
Standard deviation of the portfolio = 70.71%
Explanation:
σP =√(w²A *σ²A) + (w²B*σ²B) +2 (wA*wB*correl. AB)
w = weight of..
Given that;
wA = 50% or 0.5 as a decimal
wB = 50% or 0.5
σA = 40% or 0.4
σB = 20% or 0.2
correl. = correlation = 0.90
σP = √(0.5² * 0.4² ) + (0.5² * 0.2² ) +(2*0.5*0.5*0.90)
σP = √ (0.04 + 0.01 + 0.45
= √0.5
= 0.7071
Standard deviation of the portfolio = 70.71%
