SHOW YOUR WORK, DO NOT USE EXCEL Consider a portfolio consisting of the following two assets:...

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SHOW YOUR WORK, DO NOT USE EXCEL
Consider a portfolio consisting of the following two assets: ?Stock A has E[RA] = 10% and ?? = 20% ? Stock B has E[RB] = 20% and?? = 40% Calculate the expected return and standard deviation ofthe portfolio under the four following sets of assumptions:
(a) wA = 1/2 and wB = 1/2 and ???= 0
(b) wA = 1/2 and wB = 1/2 and ???= -1 (c) wA = 2/3 and wB = 1/3and ??? = 0
(d) wA = 2/3 and wB = 1/3 and ??? = -1

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3.7 Ratings (478 Votes)

Expected return%=	Wt Asset AReturn Asset A+Wt Asset BReturn Asset B
Expected return%=	0.50.1+0.50.2
Expected return%=	15
Variance	=( w2A?2(RA) + w2B?2(RB) + 2(wA)(wB)Cor(RA, RB)?(RA)*?(RB))
Variance	=0.5^20.2^2+0.5^20.4^2+20.50.50.20.4*0
Variance	0.05
Standard deviation=	(variance)^0.5
Standard deviation=	22.36%

Expected return%=	Wt Asset AReturn Asset A+Wt Asset BReturn Asset B
Expected return%=	0.50.1+0.50.2
Expected return%=	15
Variance	=( w2A?2(RA) + w2B?2(RB) + 2(wA)(wB)Cor(RA, RB)?(RA)*?(RB))
Variance	=0.5^20.2^2+0.5^20.4^2+20.50.50.20.4*-1
Variance	0.01
Standard deviation=	(variance)^0.5
Standard deviation=	10.00%

Expected return%=	Wt Asset AReturn Asset A+Wt Asset BReturn Asset B
Expected return%=	0.66660.1+0.33330.2
Expected return%=	13.33
Variance	=( w2A?2(RA) + w2B?2(RB) + 2(wA)(wB)Cor(RA, RB)?(RA)*?(RB))
Variance	=0.6666^20.2^2+0.3333^20.4^2+20.66660.33330.20.4*0
Variance	0.03555
Standard deviation=	(variance)^0.5
Standard deviation=	18.85%

Expected return%=	Wt Asset AReturn Asset A+Wt Asset BReturn Asset B
Expected return%=	0.66660.1+0.33330.2
Expected return%=	13.33
Variance	=( w2A?2(RA) + w2B?2(RB) + 2(wA)(wB)Cor(RA, RB)?(RA)*?(RB))
Variance	=0.6666^20.2^2+0.3333^20.4^2+20.66660.33330.20.4*-1
Variance	0
Standard deviation=	(variance)^0.5
Standard deviation=	0.00%

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SHOW YOUR WORK, DO NOT USE EXCELConsider a portfolio consisting of the following two assets: ?Stock A has E[RA] = 10% and ?? = 20% ? Stock B has E[RB] = 20% and?? = 40% Calculate the expected return and standard deviation ofthe portfolio under the four following sets of assumptions:(a) wA = 1/2 and wB = 1/2 and ???= 0(b) wA = 1/2 and wB = 1/2 and ???= -1 (c) wA = 2/3 and wB = 1/3and ??? = 0(d) wA = 2/3 and wB = 1/3 and ??? = -1