Mary Guilott recently graduated from Nichols State University and is anxious to begin investing her meager savings
Question:
Mary Guilott recently graduated from Nichols State University and is anxious to begin investing her meager savings as a way of applying what she has learned in business school.Specifically, she is evaluating an investment in a portfolio comprised of twofirms' common stock. She has collected the following information about the common stock of Firm A and FirmB: LOADING...
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a. If Mary invests half her money in each of the two commonstocks, what is theportfolio's expected rate of return and standard deviation in portfolioreturn?
b. Answer part a where the correlation between the two common stock investments is equal to zero.
c. Answer part a where the correlation between the two common stock investments is equal to +1.
d. Answer part a where the correlation between the two common stock investments is equal to 1.
e. Using your responses to questions ad, describe the relationship between the correlation and the risk and return of the portfolio.
Data Table
Expected ReturnStandard Deviation
FirmA's common stock 0.14 0.18
FirmB's common stock 0.19 0.23
Correlation coefficient 0.40