Question
Mary Guilott recently graduated from college and is evaluating an investment in two? companies' common stock. She has collected the following information about the common
Mary Guilott recently graduated from college and is evaluating an investment in two? companies' common stock. She has collected the following information about the common stock of Firm A and Firm? B:
Expected?????????? Returns??????????? | Standard Deviation |
| |
Firm? A's common stock | 0.16 | 0.14 | |
Firm? B's common stock | 0.07 | 0.05 | |
Correlation coefficient | 0.20 |
a. If Mary decides to invest 10 percent of her money in Firm? A's common stock and 90 percent in Firm? B's common? stock, what is the expected rate of return and the standard deviation of the portfolio? return? b. If Mary decides to invest 90 percent of her money in Firm? A's common stock and 10 percent in Firm? B's common? stock, what is the expected rate of return and the standard deviation of the portfolio? return? c. Recompute your responses to both questions a and b?, where the correlation between the two? firms' stock returns is negative ?0.20. d. Summarize what your analysis tells you about portfolio risk when combining risky assets in a portfolio.
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