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An investor holding a certain portfolio consisting of two stocks invests 20% in Stock A and...

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Basic Math

An investor holding a certain portfolio consisting of two stocksinvests 20% in Stock A and 80% in Stock B. The expected return fromStock A is 4% and that from Stock B is 12%. The standard deviationsare 8% and 10% for Stocks A and B respectively. Compute theexpected return of the portfolio. b) Compute the standard deviationof the portfolio assuming the correlation between the two stocks is0.75. c) Compute the standard deviation of the portfolio assumingthe correlation between the two stocks is 1. d) Compare youranswers in (b) and (c). What do you observe and why?

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SolutionCompute the expected return of the portfolioAnswer The expected return of the portfolioisb Compute the standard deviation of the    See Answer
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