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Consider two stocks (Stock A and Stock B): Expected return Standard deviation of return Stock A 15% 15% Stock B 20% 25% Correlation coefficient between
Consider two stocks (Stock A and Stock B):
Expected return | Standard deviation of return | |
Stock A | 15% | 15% |
Stock B | 20% | 25% |
Correlation coefficient between returns of Stock A and Stock B | 0.7 |
Expected return of the market portfolio | 10% |
Standard deviation of the market portfolio | 12% |
Risk-free rate | 6% |
Suppose you construct a portfolio with Stock A and Stock B. You invest 40% of your money in Stock A, and the rest 60% in Stock B. What is the expected return and standard deviation of your portfolio? What is the beta of stock B? What is the covariance of Stock As return with the return on the market portfolio?
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