Question

consider the following expected returns, volatilities and correlations:

Stock	Expected return	Standard deviation	Correlation with Duke energy	Correlation with Microsoft	Correlation with Wal-Mart
Duke energy	14%	6%	1,0	-1,0	0,0
Microsoft	44%	24%	-1,0	1,0	0,7
Wal-Mart	23%	14%	0,0	0,7	1,0

the volatility of a portfolio consisting of only Microsoft and wal-mart stock when the weight on microsoft stock is 25%. is closest to:

a) 0,140

b) 0,153

c) 0,023

d) 0,206

Answer 1

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