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You are given the following information concerning two stocks: What is the expected return on a portfolio consisting of 40 percent in stock A and
You are given the following information concerning two stocks: What is the expected return on a portfolio consisting of 40 percent in stock A and 60 percent in stock B? 10 times .40 + .14 times .60 = .04 + .084 = 12.4% What is the standard deviation of this portfolio? (.4)2(3)2+ (.6)2(5)2+ 2(.4) (.6) (3) (5) (-.1)].5 = [16 times 9 + .36 times 25 -.72].5= [1.44 +9 -.72]5= [9.72].5= 3.12 is the standard deviation Discuss the risk and return associated with investing (1) all your funds in stock A, (2) all your funds in stock B, and (3) 40 percent in A and 60 percent in B. (This answer must use the numerical information in your answers derived above.) expected return of 10%, risk = 3% expected return of 14%, 5% risk
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