Question:

For a portfolio consisting of two companies, the following information are available:

Company Expected return Standard deviation of return Money invested in the Correlation coefficient between the shares

on shares on Shares company's Shares of the two companies

A 25% 8% $70,000 0.85

B -5% 15% $40,000

i.Determine expected return of the two-asset portfolio.

ii.Determine risk of the two-asset portfolio.

iii.If the risk-free rate of return is 2.5% and the market risk premium is 11%, determine beta of the portfolio.