(5 points) Assume we have a simple portfolio of two mutual funds, one invested in bonds and the other invested in stocks. Lets further assume that stock variance is 8% and the bond variance of 6% and our allocation is 60% in stock and 40% in the bond. Compute the portfolio variance. Assume the covariance between the stock and the bond is 2%.

Exercise 2

(5 points) Consider an investor with a low risk tolerance profile. Which of the following is/are true?

(a) A portfolio with high standard deviation is preferred.

(b) A stock with high Parkinson measure is preferred.

(c) A portfolio with low Rogers, Stachell and Yoon measure is preferred.

(d) A portfolio with a small number of stocks is preferred.

(e) A stock with high variance is preferred.