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You are considering investing in two shares, A and B. The following data are available for the two shares: share A share B Expected returns

You are considering investing in two shares, A and B. The following data are available for the two shares:

share A share B
Expected returns 7% 9%
standard deviation 17% 18%
beta 0.8 0.95

Write out the formula for the portfolio standard deviation of a two-asset portfolio. Explain what each term in the equation means. If you invest 60 percent of your funds in Share A, the remainder in Share B and if the correlation of returns between Aand B is +0.4, compute the expected return and the standard deviation of returns from the portfolio.

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