You have a three-stock portfolio. Stock A has an expected return of 13 percent a

ID: 2727238 • Letter: Y

Question

You have a three-stock portfolio. Stock A has an expected return of 13 percent and a standard deviation of 34 percent, Stock B has an expected return of 17 percent and a standard deviation of 52 percent, and Stock C has an expected return of 16 percent and a standard deviation of 34 percent. The correlation between Stocks A and B is.30, between Stocks A and C is.20, and between Stocks B and C is.05. Your portfolio consists of 40 percent Stock A, 22 percent Stock B, and 38 percent Stock C. Calculate the expected return and standard deviation of your portfolio. The formula for calculating the variance of a three-stock portfolio is: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign In your response.) sigmap^2 = xA^2sigmaA^2 + xB^2sigmaB^2 + xc^2sigmac2+ 2xAxBsigmaAsigmaBCorr(RA,RB) + 2xAxcsigmaAsigmacCorr(RA,Rc) + 2xBxcsigmaBsigmacorr(RB,Rc)

Explanation / Answer

Expected return table:

Stocks

Return ×

Portfolio =

Expected return

13%

0.40

5.20%

17%

0.22

3.74%

16%

0.38

6.08%

Total

15.02%

The expected return is 15.02%