Question: Given the following information: Expected return on Stock A . 0 9 , Standard deviation of return . 1 Expected return on Stock B .

Given the following information:
Expected return on Stock A .09, Standard deviation of return .1
Expected return on Stock B .18, Standard deviation of return .16
Correlation coefficient of the returns on Stock A and Stock B .4.
a. What are the expected returns and standard deviations of the following portfolios: 70 percent of funds invested in stock A and the rest in stock B?
b. Suppose the correlation coefficient was -.3 then, what are the expected returns and standard deviations of the following portfolios: 60 percent of funds invested in stock A and the rest in stock B?
As an investor which situation you prefer a or b and why?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!