Use the following information to answer the next two quiz questions. Stock X has an expected return
Question:
Use the following information to answer the next two quiz questions.
Stock X has an expected return of 11% and a standard deviation of returns of 14%. Stock Y has an expected return of 7% and a standard deviation of returns of 14%. The correlation coefficient between the returns is 0.2
Suppose an investor forms a portfolio with $5,000 in Stock X and $5,000 in Stock Y. What will be the expected return of the portfolio?
Will the standard deviation of the returns of the portfolio in the question above be greater than, less than, or equal to 14%? Why? (You do not have to calculate the standard deviation of the returns of the portfolio to answer this question.)
Advanced Accounting
ISBN: 978-1934319307
2nd edition
Authors: Susan S. Hamlen, Ronald J. Huefner, James A. Largay III