Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

An investor decides to create a portfolio of two stocks; Risky, Inc and Safe. Inc. Risky has an expected return of 15% and the standard

image text in transcribed
An investor decides to create a portfolio of two stocks; Risky, Inc and Safe. Inc. Risky has an expected return of 15% and the standard deviation of its return is 7%. On the other hand. Safe, Inc. is not as risky. It has an expected return of 6% and the standard deviation of its return is 2%. The correlation coefficient of the two stock's return is -1.0. If the investor invests 50% in the Safe, Inc. stock and the rest in Risky, what are the expected return and standard deviation of the return of the portfolio? Is the portfolio more risky than Safe. Inc? Explain

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions