Suppose the expected returns and standard deviations of Stocks A and B are E(R A ) =

Question:

Suppose the expected returns and standard deviations of Stocks A and B are E(R_A) = .11, E(R_B) = .13, σ_A = .47, and σ_B = .81.

a. Calculate the expected return and standard deviation of a portfolio that is composed of 40 percent A and 60 percent B when the correlation between the returns on A and B is .5.

b. Calculate the standard deviation of a portfolio with the same portfolio weights as in part (a) when the correlation coefficient between the returns on A and B is −.5.

c. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... 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... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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