Question
A portfolio contains two securities A and B. Assume that the wealth held in asset A is 60%, and 40% in asset B. The rate
A portfolio contains two securities A and B. Assume that the wealth held in asset A is 60%, and 40% in asset B.
The rate of expected return on asset A is 25% and asset B is 50%
The standard deviation of returns on asset A 75% and the standard deviation of asset B = 50%.
The correlation coefficient between A and B is = 0.6.
Calculate the variance of the portfolio. Carefully explain if the expected return of the portfolio is affected by portfolio diversification.
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Finance for Executives Managing for Value Creation
Authors: Gabriel Hawawini, Claude Viallet
4th edition
9781133169949, 538751347, 978-0538751346
