Question: Explain the equation behind this Answer. An investor constructs a portfolio with a 75% allocation to a stock index and a 25% allocation to a

Explain the equation behind this Answer.

An investor constructs a portfolio with a 75% allocation to a stock index and a 25% allocation to a risk free asset. The expected returns on the risk-free asset and the stock index are 3% and 10%, respectively. The standard deviation of returns on the stock index is 14%. Calculate the expected standard deviation of the portfolio. 3. 7.5% h. 9.0% c. 10.5% d. H.596 e. 13.0% ANS: C 0.7H14%) = 10.5%

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