Question
Question 3 (15 Marks) You are forming a two stocks portfolio which has the following characteristics. Stock Return % Standard deviation investment allocation A 9
Question 3 (15 Marks) You are forming a two stocks portfolio which has the following characteristics.
| Stock | Return % | Standard deviation | investment allocation |
| A | 9 | 9 | $100,000 |
| B | 12 | 12 | $300,000 |
(A)Calculate portfolio expected return.
(B) Calculate portfolio standard deviation if the correlation between two asset is -1.
(C) Describe and discuss Risk/Return Relationship. Explain why certain investments are more risky than other with example.
(D)Discuss the concept of diversification with clear examples. If you can form a portfolio with a risky and a risk-free asset, what will be the likely impact on portfolio diversification?
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Fundamentals Of Financial Management
Authors: James Van Horne, John Wachowicz
13th Revised Edition
978-0273713630, 273713639
