Mr. Smith has a portfolio of investment with diverse stocks. This portfolio has an expected return of
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Question:
Mr. Smith has a portfolio of investment with diverse stocks. This portfolio has an expected
return of 18%, but a standard deviation of 30%. Mr Smith is considering adding a stock. He
hesitates between one of the two stocks in the following table:
Expected Return
Stock A - 15%
Stock B - 15%
Standard Deviation
Stock A - 25%
Stock B - 20%
Correlation with His Portfolio's Returns
Stock A - 0.2
Stock B - 0.6
If after adding the stock he will have 20% of his money in the new stock and 80% of his
money in his existing portfolio, which one should he add?
Related Book For
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date: