A hedge fund has created a portfolio using just two stocks. It has shorted $35,000,000 worth of

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A hedge fund has created a portfolio using just two stocks. It has shorted $35,000,000 worth of Oracle stock and has purchased $85,000,000 of Intel stock. The correlation between Oracle’s and Intel’s returns is 0.65. The expected returns and standard deviations of the two stocks are given in the table below:

Expected Return Standard Deviation Oracle 12.00% 45.00%

Intel 14.50% 40.00%

a. What is the expected return of the hedge fund’s portfolio?

b. What is the standard deviation of the hedge fund’s portfolio?

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Corporate Finance The Core

ISBN: 9781292431611

5th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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