Question: We are thinking about a portfolio where we put 30% of our money in stock A and 70% of our money in stock B. Correlation

We are thinking about a portfolio where we put 30% of

We are thinking about a portfolio where we put 30% of our money in stock A and 70% of our money in stock B. Correlation coefficient between stock A and Stock B is 0.8.(Total 6 Marks)

Required:

a)What is the portfolio expected return (rp)?(1 Marks)

b)What is the portfolio standard deviation (?P)?(2 Marks)

c)What is the portfolio beta (?P)?(1 Marks)

d)Analyse the riskiness of individual stocks with regards to the riskiness of the portfolio.(2 Mark)

Formulas

?p= WA?A+ WB?B

?p= ?wA2?A2+wB2?B2+2wAwB?AB?A?B

?p=wA?A+ wB?B

our money in stock A and 70% of our money in stock

We have the following information about two stocks, A and B. Stock Expected Return Standard E(R) Deviation (o) Beta (B) A 0.15 0.13 0.9 B 0.10 0.15 1.6 We are thinking about a portfolio where we put 30% of our money in stock A and 70% of our money in stock B. Correlation coefficient between stock A and Stock B is 0.8. (Total 6 Marks) Required: a) What is the portfolio expected return (Ip)? (1 Marks) b) What is the portfolio standard deviation (op)? (2 Marks) c) What is the portfolio beta (Bp)? (1 Marks) d) Analyse the riskiness of individual stocks with regards to the riskiness of the portfolio. (2 Mark) Formulas Fp = WAFA + WB/B Op = VWAOA2+WBOB2+2WAWBPABUAUB Bo=WABA + WEBB

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