You have a three-stock portfolio. Stock A has an expected return of 11 percent a

Question

You have a three-stock portfolio. Stock A has an expected return of 11 percent and a standard deviation of 36 percent, Stock B has an expected return of 15 percent and a standard deviation of 41 percent, and Stock C has an expected return of 15 percent and a standard deviation of 41 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 42 percent Stock A, 25 percent Stock B, and 33 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?

You have a three-stock portfolio. Stock A has an expected return of 11 percent and a standard deviation of 36 percent, Stock B has an expected return of 15 percent and a standard deviation of 41 percent, and Stock C has an expected return of 15 percent and a standard deviation of 41 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 42 percent Stock A, 25 percent Stock B, and 33 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?

Explanation / Answer

Stock A Stock B Stock C Expected return 0.11 0.15 0.15 Standard deviation 0.36 0.41 0.41 correlation a and b .3 correlation a and c .2 correlation b and c .05 wights 0.42 0.25 0.33 Expected return of portfolio= (.11*.42)+(.15*.25)+(.15*.33) 13.32% variance of portfolio=    [(0.42)(.36) + (0.25)(.41) +(0.33)(.41)+ 3(0.42)(0.36)(0.25)(.41)(0.33)(.41)(.3)(.2)(.05)] 0.389018872 Stanadard deviation of portfolio= 62.37%

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