Two-Asset Portfolio (PLEASE NOTE THAT NUMBERS ARE DIFFERENT THAN IN TEXTBOOK!) S
ID: 2766944 • Letter: T
Question
Two-Asset Portfolio (PLEASE NOTE THAT NUMBERS ARE DIFFERENT THAN IN TEXTBOOK!)
Stock A has an expected return of 13% and a standard deviation of 35%. Stock B has an expected return of 16% and a standard deviation of 65%. The correlation coefficient between Stocks A and B is 0.2. What is the expected return of a portfolio invested 20% in Stock A and 80% in Stock B? Round your answer to two decimal places.
________ %
What is the standard deviation of a portfolio invested 20% in Stock A and 80% in Stock B? Round your answer to two decimal places.
________ %
Explanation / Answer
Answer: ERp=13%*0.2+16%*0.80
=2.6%+12.8%=15.4%
Standard deviation (Portfolio)=[(0.20)2*35%+(0.80)2*65%+2*0.2*0.8*0.2]1/2
=[1.4+41.6+0.064]1/2
=6.56%
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