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Ch 08: Assignment - Risk and Rates of Return Back to Assignment Attempts Keep the Highest/2 7. Portfolio expected return and risk A collection of Financial assets and securities is referred to as a portfolio. Most Individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk Portfolio risk refers to the possibility that an investment portfolio will not generate the investor's expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio Consider the following cose: Andre is an amateur Investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Stock Standard Deviation Percentage of Portfolio 20% Expected Return 6.00% 30% 14.00 Artemis Inc Babish & Co. Cornell Industries Danforth Motors 26.00% 30.00% 33.00% 35% 11.00% 5.00% 15% 35.00% What is the expected return on Andre's stock portfolio? Ch 08: Assignment Risk and Rates of Return Stock Artemis Inc Babish & Co Comell Industries Danforth Motors Percentage of Portfolio Expected Return 20 6.00% 14.00% 35 11.00 159 5.00% 30% Standard Deviation 26.00% 30.000 33.00% 35.00 What is the expected return on Andre's stock portfolio? 13.504 O 10.00% 15.00 7.50 Suppose each stock in Andre's portfolio has a correlation coefficient of 0.4 (0.4) with each of the other stockt. If the weighted average of the risk of the individual securities (es mesured by their standard deviations) included in the partially diversified four stock portfolio is 314, the portfolio's standard deviation () most likely 31