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How much would psmi portfolio historical risk been reduced

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Reference no: EM132534759

Question 1: Passive Stock Market Investor (PSMI) holds one stock market index ETF in his/her portfolio, but has learned that investing in a bond market index ETF as well may reduce his/her portfolio risk due to diversification. The annual returns for both ETFs for the last ten years are listed below. Measured by the standard deviation of returns, by how much would PSMI's portfolio's historical risk been reduced if PSMI invested 70% in the stock market index ETF and 30% in the bond market index ETF rather than his current allocation of 100% in the stock market index ETF? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

Year             Stock ETF               Bond ETF

2009               39.00%.           5.00%

2010              18.00%            6.00%

2011               1.00%             8.00%

2012               16.00%          4.00%

2013              34.00%          -3.00%

2014               13.00%            5.00%

2015                0.00%            0.00%

2016               13.00%            2.00%

2017               21.00%           4.00%

2018                 - 5.00%         0.00%

Reference no: EM132534759

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