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    Standard Deviation and risk of a portfolio

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    1) Consider two securities, A and B, with standard deviations of 30% and 40%, respectively. Calculate the standard deviation of a portfolio weighted equally between the two securities if their correlation is:

    1. 0.9
    2. 0.0
    3. -0.9

    2) Jean Smith owns a portfolio composed of three securities with the following characteristics:

    Security Beta Standard Deviation Random Error Term Proportion
    A 1.20 5% 0.30
    B 1.05 8% 0.50
    C 0.90 2% 0.20

    If the standard deviation of the market index is 18%, what is the total risk of Jean's portfolio?

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    Solution Summary

    The solution calculates standard deviation and risk of a portfolio.