Standard deviation of return on optimal risky portfolio

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An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is

A. 5%

B. 7%

C. 20%

D. 0%

You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The stock and bond portfolios have a correlation of .55. The standard deviation of the resulting portfolio will be:

A. more than 12% but less than 18%

B. equal to 18%

C. more than 18% but less than 24%

D. equal to 12%

Reference no: EM132037060

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