Problem 6-06

Given:

E(R₁) = 0.13

E(R₂) = 0.18

E(₁) = 0.04

E(₂) = 0.06 Calculate the expected returns and expected standard deviations of a two-stock portfolio having a correlation coefficient of 0.65 under the conditions given below. Do not round intermediate calculations. Round your answers to four decimal places.

What is?...

1. w₁ = 1.00
2. Expected return of a two-stock portfolio:
3. Expected standard deviation of a two-stock portfolio:
4. w₁ = 0.70
5. Expected return of a two-stock portfolio:
6. Expected standard deviation of a two-stock portfolio:
7. w₁ = 0.50
8. Expected return of a two-stock portfolio:
9. Expected standard deviation of a two-stock portfolio:
10. w₁ = 0.25
11. Expected return of a two-stock portfolio:
12. Expected standard deviation of a two-stock portfolio:
13. w₁ = 0.10
14. Expected return of a two-stock portfolio:
15. Expected standard deviation of a two-stock portfolio:

Choose the correct risk-return graph for weights from parts (a) through (e) when r_i,j = -0.65; 0.00; 0.65.

The correct graph is

.

A. B. C. D.