Question: You are given the following information: a) What are the expected returns and standard deviations of a portfolio consisting of: 1. 100 percent in stock

You are given the following information:

a) What are the expected returns and standard deviations of a portfolio consisting of:
1. 100 percent in stock A?
2. 100 percent in stock B?
3. 50 percent in each stock?
4. 25 percent in stock A and 75 percent in stock B?
5. 75 percent in stock A and 25 percent in stock B?
b) Compare the above returns and the risk associated with each portfolio.
c) Redo the calculations assuming that the correlation coefficient of the returns on the two stocks is 20.6. What is the impact of this difference in the correlationcoefficient?

Expected return on stock A Expected return on stock B Standard deviation of returns 12% 20% stock A stock B 1.0 6.0 Correlation coefficient of the returns on stocks A and B

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a Position Expected Return Standard Deviation All A 12 100 All B 20 600 50A50B 16 314 25A75B 18 4... View full answer

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