Question
You are trying to calculate the standard deviation of your portfolio that contains asset A and B. Consider the following: Asset A: The current price
You are trying to calculate the standard deviation of your portfolio that contains asset A and B. Consider the following: Asset A: The current price of stock A is $10 per share. There is a 40% chance that at the end of the year (i.e., 1 year from today), the share price will be $11, and there is a 60% chance that at the end of the year, the share price will be $13. The probability that the stock will pay any dividend is zero. Asset B: The standard deviation of stock B is 14%. The correlation between asset A and B is 0.7. Your total investment in the portfolio is $500,000, out of which $200,000 has been invested in asset B. What is the standard deviation of your portfolio?
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