Problem 4: You form a portfolio of a riskless asset and two stocks, A and B....
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Problem 4: You form a portfolio of a riskless asset and two stocks, A and B. Stock A has expected return of 15% and standard deviation of 30%, while stock B has an expected return of 10% and a standard deviation of 50%. The correlation between stocks A and B is -0.1. The risk-free asset, which has a return of 5% 1. Calculate the standard deviation of a portfolio that invests 30% in each of the two stocks, and the remainder in the risk-free asset. 2. What's the Sharpe ratio of this portfolio? Problem 4: You form a portfolio of a riskless asset and two stocks, A and B. Stock A has expected return of 15% and standard deviation of 30%, while stock B has an expected return of 10% and a standard deviation of 50%. The correlation between stocks A and B is -0.1. The risk-free asset, which has a return of 5% 1. Calculate the standard deviation of a portfolio that invests 30% in each of the two stocks, and the remainder in the risk-free asset. 2. What's the Sharpe ratio of this portfolio?
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