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Question 2 (7 points) An investor holding a portfolio consisting of two stocks invests 25% of assets in Stock A and 75% into Stock B.
Question 2 (7 points) An investor holding a portfolio consisting of two stocks invests 25% of assets in Stock A and 75% into Stock B. The return RA from Stock A has a mean Ma= 4% and a standard deviation Oa= 8%. The return RB from stock B has a mean Ug = 8% with a standard deviation 0g =12%. Do not convert these numbers into decimal form. a. What is the return on the portfolio? Then compute the mean return on the portfolio. (2 points) b. Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns (i) are perfectly, positively correlated, (ii) have a correlation coefficient of 0.5, and (iii) are uncorrelated. (5 points)
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