Question
Your stock portfolio consists of two American companies; Apple Inc. and Ford Motor Company. You are living in Australia and those shares are purchased in
Your stock portfolio consists of two American companies; Apple Inc. and Ford Motor Company. You are living in Australia and those shares are purchased in the USD. During the last 12 months, Apples stock went up by 40%, while Ford went down by 30%. During the same period, the USD went up by 3% against the AUD. Assume that you have invested 60% of your money into Apple and allocated 40% of your money into Ford. Furthermore, assume that the standard deviations of stock returns are 5% for Apple and 7% for Ford, and the correlation coefficient between the two stock is 0.6. (a) What is the portfolios return over the 12 months in the USD, (b) what is its return in the AUD, and (c) what is the standard deviation of your portfolio return? Provide all the workings (use up to 3 decimal places).
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