What is the standard deviation (in dollars) of a portfolio worth $10,000, of which $4,000 is invested in Stock A, with an expected return of 10% and standard deviation of 20%; and the rest in Stock B, with an expected return of 12% and a standard deviation of 25%. The correlation between the two stocks is 0.6.

What is the standard deviation (in dollars) of a portfolio worth $10,000, of which $4,000 is invested in Stock A, with an expected return of 10% and standard deviation of 20%; and the rest in Stock B, with an expected return of 12% and a standard deviation of 25%. The correlation between the two stocks is 0.6.
A . $2,081
B . $1,201
C . $1,204
D . $4,330,000

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Answer: A

Explanation:

Standard deviation of this portfolio can be calculated as SQRT(4000^2*20%^2 + 6000^2*25%^2 + 2*0.6*4000*6000*20%*25%), which is equal to $2,081. Choice ‘a’ is the correct answer. The other answers are incorrect.