Question
An analyst gathered the historical prices for two stocksand estimated the expected annual return and standard deviation of the annual returns: stock mean annual return
An analyst gathered the historical prices for two stocksand estimated the expected annual return and standard deviation of the annual returns:
stock | mean annual return % | Standard deviation of return |
A | 10 | 20 |
B | 15 | 25 |
If the two stocks are independent, I.e the correlation is equal to zero, a portfolio was constructed with 30% of stock A and 70% of stock B.
a.) compute the expected return and standard deviation of the portfolio
b.) if each stock return have a normal distribution, what distribution does this portfolios.return have? c.) assume that the portfolios mean return and standard deviation of returns are estimated in question (a). Find out what value the portfolios return will exceed than with 1% of probability (type the excel functions)
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