Suppose the expected returns and standard deviations of Stocks A and B are E(R A ) =
Question:
Suppose the expected returns and standard deviations of Stocks A and B are E(RA) = .10, E(RB) = .13, σA = .41, and σB = .59, respectively.
a. Calculate the expected return and standard deviation of a portfolio that is composed of 40 percent A and 60 percent B when the correlation between the returns on A and B is .5.
b. Calculate the standard deviation of a portfolio that is composed of 40 percent A and 60 percent B when the correlation coefficient between the returns on A and B is −.5.
c. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?
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Step by Step Answer:
a The expected return of the portfolio is the sum of the weight of each asset tim...View the full answer
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Related Book For 
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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