Question
Consider an investor with a 3-asset portfolio. Fifty percent of the investors portfolio is invested in common stock with an expected return of 9%, an
Consider an investor with a 3-asset portfolio. Fifty percent of the investors portfolio is invested in common stock with an expected return of 9%, an additional thirty percent of the investors portfolio is invested in corporate bonds with an expected return of 5%, while the remaining twentypercent of the portfolio in invested in real estate which offers an expected return of 13%.The standarddeviation of return for the three individualinvestments are 19%, 8%, and 23%respectively. If the correlation coefficient between the stock and bond returns is 0.70, the correlation coefficient between the bond and real estate returns is 0.50, and the correlation coefficient between the stock and real estate returns is 0.30, what arethe expected return and standard deviation of expected return for this portfolio?
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