Calculate the volatility by first calculating the variance

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Reference no: EM131861395

Suppose you have $100,000 in cash,, and you decide to borrow another $25,000 at a 6%% interest rate to invest in the stock market.. You invest the entire $125,000 in a portfolio J with a 24% expected return and a 26% volatility

The portfolio weights are 1.25 and -0.25

When finding the volaitility of this portfolio, why cant we calculate the volatility by first calculating the variance e.g. x^2 Var (R2) - 1.25(0.26)^2, which gives us the variance which we can then square root to find our volatility? The answers state otherwise and instead 1.25 is multipled by 0.26 to find the volatility.

Reference no: EM131861395

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