QUESTION 14 An investor has decided to form a portfolio by putting 45% of his money into Google's stock and the remaining money into Apple's stock. The investor assumes that the expected returns will be 12% on Google and 20% on Apple, and that the standard deviations will be 0.10 and 0.20, respectively. What is the variance of returns on the portfolio, if the investor assumes that the two stocks' returns are perfectly positively correlated? O Var [Return on portfolio] = 0.024 O Var [Return on portfolio] = 0.042 O Var [Return on portfolio] = 0.003 O Var [Return on portfolio] = 0.004
Continuous Probability Distributions
Probability distributions are of two types, which are continuous probability distributions and discrete probability distributions. A continuous probability distribution contains an infinite number of values. For example, if time is infinite: you could count from 0 to a trillion seconds, billion seconds, so on indefinitely. A discrete probability distribution consists of only a countable set of possible values.
Normal Distribution
Suppose we had to design a bathroom weighing scale, how would we decide what should be the range of the weighing machine? Would we take the highest recorded human weight in history and use that as the upper limit for our weighing scale? This may not be a great idea as the sensitivity of the scale would get reduced if the range is too large. At the same time, if we keep the upper limit too low, it may not be usable for a large percentage of the population!
![QUESTION 14
An investor has decided to form a portfolio by putting 45% of his money into Google's stock and the remaining money into Apple's
stock. The investor assumes that the expected returns will be 12% on Google and 20% on Apple, and that the standard deviations
will be 0.10 and 0.20, respectively. What is the variance of returns on the portfolio, if the investor assumes that the two stocks'
returns are perfectly positively correlated?
O Var [Return on portfolio] = 0.024
O Var [Return on portfolio] = 0.042
O Var [Return on portfolio] = 0.003
O Var [Return on portfolio] = 0.004](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fce5febb7-d3d7-4c2f-8983-ba36bb85d089%2Fd7f7b9a9-837e-407a-ae00-61d9b358e4f8%2Fq8q90r8_processed.jpeg&w=3840&q=75)
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