Question
U.S. dollars (%) U.K. pounds (%) Brazilian reals (%) Expected return 15 12 5 Standard deviation 10 9 4 Correlation with U.S. dollars 0.33 0.06
| U.S. dollars (%) | U.K. pounds (%) | Brazilian reals (%) |
Expected return | 15 | 12 | 5 |
Standard deviation | 10 | 9 | 4 |
Correlation with U.S. dollars |
| 0.33 | 0.06 |
Suppose you have $80,000 to invest in two of the three currency manufacturing companies. Each is based in the United States, therefore, no currency translation is required. The profit rates and standard deviations are listed above. Suppose you want to minimize your risk and invest equal amounts in U.S. dollars and one of the other two currencies. In addition, you want to invest one-third of your wealth in the risk-free asset. Based on the information given, what is the standard deviation of this portfolio?
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