12. Incorrect. The answer is false, not true.
You can deduce the formula of X + Y as follows:
Var [X+Y] = E [(X+Y) - E(X+Y) ]2
Squaring the binomial, you get:
Var [X+Y] = E{[X
- E(X)2 } + E{ [Y - E(Y)2] + 2 E {[X - E(X)][Y -E(Y)] }
Applying the definitions of variance and covariance to the right-hand side, the variance of the sum becomes:
Var [X+Y] = Var
(X) + Var (Y) + 2Cov(X,Y).
Using the numbers with this formula, you have:
Var [X+Y] = 50 + 20 + 2*(-27) = 16
The standard deviation of the portfolio is: {Var[X+Y]}0.5 = US$ 4.