Consider the following data on returns (r), standard deviation weights (w), and correlations (r) for two stocks: r1 = 10%, ? 1 = 4%, r2 = 20%, ? 2 = 6%, r12 = -1.0, w1=0.50, w2=0.50what is the standard deviation of a portfolio of stocks 1 and 2 with the above weights? 1. 1.0%2. 1.10%3. 10%4. none of the given answers is correct.5. 0.20%

Option (4) is correct.

Explanation:

Given that,

Data on two stocks:

R1 = 10%

σ1 =  4%

R2 = 20%

σ2 = 6%

r12 = -1.0

W1 = 0.50

W2 = 0.50

Where,

σ - standard deviation

r - correlations

R - returns

Standard deviation of portfolio =

                                                    =

                                                    = 0.01

                                                    = 1%

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