Answer:
18.35%
Step-by-step explanation:
The proportion of the standard deviation of return of the portfolio combining two assets A and B is given by
[tex]\large \sigma_P=\sqrt{W_A^2\sigma_A^2+W_B^2\sigma_B^2+2R(A,B)W_A\sigma_AW_B\sigma_B}[/tex]
where
[tex]\large W_A[/tex] = proportion of asset A in the investment.
[tex]\large W_B[/tex] = proportion of asset B in the investment.
[tex]\large \sigma_A[/tex] = proportion of standard deviation of return for asset A.
[tex]\large \sigma_B[/tex] = proportion of standard deviation of return for asset B.
R(A,B) = correlation between the two investments
The total investment is
$10,500 + $15,700 = $26,200
Let A be the asset of Intel's corporate bonds and B the asset of Microsoft stocks
[tex]\large W_A=\frac{10,500}{26,200}=0.4[/tex]
[tex]\large W_B=\frac{15,700}{26,200}=0.6[/tex]
[tex]\large \sigma_A=0.12[/tex]
[tex]\large \sigma_B=0.27[/tex]
R(A,B) = 0.33
Replacing in our formula
[tex]\large \sigma_P=\sqrt{(0.4)^2(0.12)^2+(0.6)^2(0.27)^2+2*0.33*0.4*0.12*0.6*0.27}\Rightarrow\\\\\boxed{\sigma_P=0.1835=18.35\%}[/tex]
