Tyler Trucks stock has an annual return mean and standard deviation of 11 percen

Question

Tyler Trucks stock has an annual return mean and standard deviation of 11 percent and 20 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 17 percent and 32 percent, respectively. Your portfolio allocates equal funds to Tyler Trucks stock and Michael Moped Manufacturing stock. The return correlation between Tyler Trucks and Michael Moped Manufacturing is 0.5. What is the smallest percentage expected loss for your portfolio in the coming month with a probability of 5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

Portfolio mean=0.5*11%+0.5*20%=15.5%

Portfolio standard deviaiton=sqrt(0.5^2*17%^2+0.5^2*32%^2+2*0.5*0.5*0.5*17%*32%)=21.5464%

Smallest percentage loss=15.5%-1.65*21.5464%=-20.052%

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