(Computing the standard deviation for a portfolio of two risky investments) Mary Guilott recently graduated from...
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(Computing the standard deviation for a portfolio of two risky investments) 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 decides to invest 10 percent of her money in Firm A's common stock and 90 percent in Firm B's common stock, what is the expected rate of return and the standard deviation of the portfolio return? b. If Mary decides to invest 90 percent of her money in Firm A's common stock and 10 percent in Firm B's common stock, what is the expected rate of return and the standard deviation of the portfolio return? c. Recompute your responses to both questions a and b, where the correlation between the two firms' stock returns is -0.20. d. Summarize what your analysis tells you about portfolio risk when combining risky assets in a portfolio. a. If Mary decides to invest 10% of her money in Firm A's is 0.20, then the expected rate of return in the portfolio is The standard deviation in the portfolio is %. (R b. If Mary decides to invest 90% of her money in F is 0.20, then the expected rate of return in the portf The standard deviation in the portfolio is %. (R common stock and 90% in Firm B's common stock and the correlation coefficient between the two stocks %. (Round to two decimal places.) Data table Firm A's common stock Expected Standard Returns Deviation 0.15 0.13 0.08 0.06 Correlation coefficient 0.20 (Click on the icon in order to copy its contents into a spreadsheet) Firm B's common stock - X (Computing the standard deviation for a portfolio of two risky investments) 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 decides to invest 10 percent of her money in Firm A's common stock and 90 percent in Firm B's common stock, what is the expected rate of return and the standard deviation of the portfolio return? b. If Mary decides to invest 90 percent of her money in Firm A's common stock and 10 percent in Firm B's common stock, what is the expected rate of return and the standard deviation of the portfolio return? c. Recompute your responses to both questions a and b, where the correlation between the two firms' stock returns is -0.20. d. Summarize what your analysis tells you about portfolio risk when combining risky assets in a portfolio. a. If Mary decides to invest 10% of her money in Firm A's is 0.20, then the expected rate of return in the portfolio is The standard deviation in the portfolio is %. (R b. If Mary decides to invest 90% of her money in F is 0.20, then the expected rate of return in the portf The standard deviation in the portfolio is %. (R common stock and 90% in Firm B's common stock and the correlation coefficient between the two stocks %. (Round to two decimal places.) Data table Firm A's common stock Expected Standard Returns Deviation 0.15 0.13 0.08 0.06 Correlation coefficient 0.20 (Click on the icon in order to copy its contents into a spreadsheet) Firm B's common stock - X
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