Consider two stocks (Stock A and Stock B) Expected return Standard deviation of return Stock A 15 15 Stock B 20 25 Correlation coefficient between returns of Stock A and Stock B 0 7 Expected return of the market portfolio 10 Standard deviation of the market portfolio 12 Risk free rate 6 Suppose you construct a portfolio with Stock A and Stock B You invest 40 of your money in Stock A, and the rest 60 in Stock B What is the expected return and standard deviation of your portfolio What is the beta of stock B What is the covariance of Stock As return with the return on the market portfolio

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Question: Consider two stocks (Stock A and Stock B): Expected return Standard deviation of return Stock A 15% 15% Stock B 20% 25% Correlation coefficient between

Consider two stocks (Stock A and Stock B):

	Expected return	Standard deviation of return
Stock A	15%	15%
Stock B	20%	25%

Correlation coefficient between returns of Stock A and Stock B	0.7
Expected return of the market portfolio	10%
Standard deviation of the market portfolio	12%
Risk-free rate	6%

Suppose you construct a portfolio with Stock A and Stock B. You invest 40% of your money in Stock A, and the rest 60% in Stock B. What is the expected return and standard deviation of your portfolio? What is the beta of stock B? What is the covariance of Stock As return with the return on the market portfolio?

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