Final answer:
The overall volatility of a portfolio containing Home Depot and General Motors stocks cannot be calculated with the given information because the correlation coefficient between the stocks is not provided. So, the mentioned correct option in the final part would be (d) not possible to calculate as the information is inadequate.
Step-by-step explanation:
The question is asking about the overall volatility of a portfolio consisting of Home Depot and General Motors stocks, given that both have individual volatilities of 20%. To determine the overall portfolio volatility, we would need additional information such as the correlation coefficient between the two stocks. Since the given information does not include the correlation coefficient, and this measure is critical in calculating the combined portfolio risk through the formula for portfolio variance, we cannot accurately compute the overall portfolio volatility.
Therefore, based on the information provided in the question, we can conclude that the overall volatility of the portfolio holding both stocks is not possible to calculate because the information is inadequate.
If more information, specifically the correlation coefficient, were available, we could use the formula for portfolio variance to find the correct answer between the options provided:
- (a) 20%
- (b) 16%
- (c) 18%
- (d) not possible to calculate as the information is inadequate
Since we lack this key piece of data, the mentioned correct option in the final part would be (d) not possible to calculate as the information is inadequate.