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The analysis of outcomes for sales and the associated rate of return on common stocks for companies Young and Gibbs are shown below. You intend
The analysis of outcomes for sales and the associated rate of return on common stocks for companies Young and Gibbs are shown below. You intend to form a portfolio by allocating $7500 of your total wealth of $10000 in Company Young, and the remainder in Company Gibbs. The correlation coefficient between the two companies is .35. Show all work to receive full credit. 1. What is the expected return and standard deviation for common stocks in each company? (1.5 pts each) 2. What is the portfolio return (2pts) and standard deviation (4pts) for this two-stock portfolio? Explain in words why the portfolio standard deviation is different from the weighted sum of the individual standard deviations? (3pts) The analysis of outcomes for sales and the associated rate of return on common stocks for companies Young and Gibbs are shown below. You intend to form a portfolio by allocating $7500 of your total wealth of $10000 in Company Young, and the remainder in Company Gibbs. The correlation coefficient between the two companies is .35. Show all work to receive full credit. 1. What is the expected return and standard deviation for common stocks in each company? (1.5 pts each) 2. What is the portfolio return (2pts) and standard deviation (4pts) for this two-stock portfolio? Explain in words why the portfolio standard deviation is different from the weighted sum of the individual standard deviations? (3pts)
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