An investor owns a $8,000 diversified portfolio.

a.) He adds in $2,000 worth of stock A to this portfolio. What is the expected monthly return and volatility of this new portfolio?

Original portfolio: expected monthly return = 0.5%, volatility of monthly returns = 2.5%

Stock A: expected monthly return = 1.5%, volatility of monthly returns = 3%

correlation = 0.5

b.) Instead of stock A, he invests the money in a risk-free asset with 0.3% monthly return. What is the expected monthly return and volatility of this new portfolio?

Answer rating: 100% (QA)

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