Answer:
mean = 14%; standard deviation = 3%
Explanation:
We treat the combined investment as a portfolio, with 50% each of the portfolio size invested in each asset.
Asset A: return (r) = 10%; standard deviation (s) = 0
Asset B: return (r) = 18%; standard deviation (s) = 6%
Portfolio mean (R) =
[tex](w_{1}*r_{1})+(w_{2}*r_{2})\\=(0.5*0.1)+(0.5*0.18)\\=0.05+0.09\\=0.14[/tex]
Therefore, portfolio mean = 14%.
Portfolio standard deviation (S) = [tex][(w_{1}^{2}*s_{1}^{2})+(w_{2}^{2}*s_{2}^{2})+(2w_{1} w_{2}COV_{12} )]^{\frac{1}{2}}[/tex]
Since no information was given about portfolio covariance, we will assume it is zero.
[tex]S=[(w_{1}^{2}*s_{1}^{2})+(w_{2}^{2}*s_{2}^{2})]^{\frac{1}{2}}\\=[(0.5^{2} *0^{2} )+(0.5^{2} *0.06^{2} )]\\=0.25*0.0036\\=0.03[/tex]
Therefore, portfolio standard deviation = 3%.
