Question: you have the following information: Stock Expected Return Standard Deviation J 7% 16% W 10% 20% Calculate the expected return and the standard deviation of

you have the following information:

Stock

Expected Return

Standard Deviation

J

7%

16%

W

10%

20%

  1. Calculate the expected return and the standard deviation of a portfolio that is equally invested in both stocks. Assume the correlation between two stock returns is 0.22.
  2. Calculate the expected return and the standard deviation of a portfolio that invests 20% of the money in Stock J, and the rest in Stock W. Assume the correlation between two stock returns is 0.22.
  3. If the correlation between the two stocks increases, what happens to the expected return of the portfolio? Does the expected return rise or fall?
  4. If the correlation between the two stocks increases, will the standard deviation of the portfolio rise or fall?

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