You have analyzed the returns of mutual funds X and Y for the last several years and have gathered the following information.

Fund X:

• Annual return: 16%
• Standard deviation: 20%

Fund Y:

• Annual return: 14%
• Standard deviation: 16%

The correlation coefficient between the two funds is 0.35. Assuming your portfolio consists 60% of Fund X and 40% of Fund Y, calculate the standard deviation of this two-asset portfolio.

A)

Greater than 18.4%

B)

Exactly 18.4%

C)

Less than 18.4%

D)

Not determinable