The return on a stock has a normal distribution with a mean of 12% and a standard deviation of 8%. An investor is considering investing in a portfolio consisting of 3 stocks with the following characteristics:

Stock A: Mean return of 8% and a standard deviation of 12% Stock B: Mean return of 14% and a standard deviation of 10% Stock C: Mean return of 10% and a standard deviation of 6%

a) Calculate the expected return and standard deviation of the portfolio if the investor invests equal amounts in each stock.

b) If the investor wants to achieve a portfolio standard deviation of 7%, what should be the weights of each stock in the portfolio?

Show all calculations and answer to 2 decimal places.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a The expected return of the portfolio can be calculated as the weighted average of the e... View the full answer