Question: Consider the following information about the expected return and volatility of Stock A and Stock B: Stock A Expected Return Stock: 7.5% Stock A Volatility:

Consider the following information about the expected return and volatility of Stock A and Stock B:

Stock A Expected Return Stock: 7.5%

Stock A Volatility: 25.5%

Stock B Expected Return: 8.6%

Stock B Volatility: 17.5%

Correlation between Stock A and Stock B: 0.4

The volatility of an equally weighted portfolio of both stocks is closest to:

Use the formula for the variance of a two stock portfolio plus the formula that Cov(Ri , Rj ) =corr(Ri , Rj )*SD(Ri)*SD(Rj ) )

a.16.84

b.15.47

c.21.50

d.18.12

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