Mark Harrywitz proposes to invest in two shares, X and Y. He expects a return of 12

Question:

Mark Harrywitz proposes to invest in two shares, X and Y. He expects a return of 12 percent from X and 8 percent from Y. The standard deviation of returns is 8 percent for X and 5 percent for Y. The correlation coefficient between the returns is .2.

a. Compute the expected return and standard deviation of the following portfolios:

Percentage in Y 50 75 25 Percentage in X Portfolio 25 75 2 3

b. Sketch the set of portfolios composed of X and Y.

c. Suppose that Mr. Harrywitz can also borrow or lend at an interest rate of 5 percent. Show on your sketch how this alters his opportunities. Given that he can borrow or lend, what proportions of the common stock portfolio should be invested in X and Y?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...