Portfolio Standard Deviation Suppose the expected returns and standard deviations of stocks A and B are E(RA)
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Portfolio Standard Deviation Suppose the expected returns and standard deviations of stocks A and B are E(RA) .15, E(RB) .25, A .40, and B .65, respectively.
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 that is composed of 40 percent A and 60 percent B 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?
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