suppose you add a new stock to your portfolio. NewCo now accounts for 50% of you
ID: 2625699 • Letter: S
Question
suppose you add a new stock to your portfolio. NewCo now accounts for 50% of your total portfolio. The expected dollar return on NewCO stck is 19% and its standard deviation is 30. Assuming that the new portfolio has a correlation coefficient of .3:
a)what is the weighted average portfolio return and standard deviation?
b) what is the real portfolio variance and standard deviation?
c) what happened to the portfolios returns and total risk with this new addition?
d) what accounts for this effect?
Explanation / Answer
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