Question

Mary Guilott recently graduated from college and is evaluating an investment in two companies’ common stock. She has collected the following information about the common stock of Firm A and Firm B:


a. If Mary invests half her money in each of the two common shares, what is the expected rate of return and standard deviation in portfolio return?
b. Answer question a, where correlation between the two common stock investments is equal to zero.
c. Answer question a, where correlation between the two common stock investments is equal to 11.
d. Answer question a, where correlation between the two common stock investments is equal to 21.
e. Using your responses to questions a–d, describe the relationship between correlation and the risk and return of theportfolio.


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  • CreatedOctober 31, 2014
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