Standard Deviation of Portfolio

C

Standard deviation of a two-stock portfolio = [W12σ12+ W22σ22+ 2W1W2σ1σ2r1,2]1/2=[(.8)2(.34)2+ (.2)2(.16)2+ 2(.8)(.2)(.34)(.16)(.67)]1/2= 0.29439

To calculate the standard deviation of a portfolio, we need to consider the individual standard deviations of each stock, as well as the correlation between them.

Let's denote the standard deviation of Stock R as σ(R), the standard deviation of Stock S as σ(S), and the correlation between the two stocks as ρ(R,S).

The formula for calculating the standard deviation of a portfolio is as follows:

σ(Portfolio) = √[(w(R)^2 * σ(R)^2) + (w(S)^2 * σ(S)^2) + (2 * w(R) * w(S) * ρ(R,S) * σ(R) * σ(S))]

where:

• w(R) is the weight of Stock R in the portfolio,
• w(S) is the weight of Stock S in the portfolio.

Unfortunately, the weights of the stocks in the portfolio are not given in the question. Without this information, it is not possible to calculate the standard deviation of the portfolio accurately.

Therefore, we cannot determine the correct answer from the options provided (A, B, C, D) without knowing the weights of the stocks.