A fund manager has been asked to analyze the potential performance of a portfoli

Question

A fund manager has been asked to analyze the potential performance of a portfolio containing 3 stocks (call them A, B and C). The portfolio he is considering would include 50% Stock A, 40% Stock B, and 10% Stock C. He estimates that the mean returns of the 3 stocks are 8%, 10% and 15%. The analyst also determines that the variances of the three stocks are 0.01,.16, and 09 respectively. Finally, he estimates that the correlation matrix between the three returns is as shown below. .6 C 84 Find the expected (or mean) return of the portfolio. Enter the answer as a decimal to 3 places Question 15 4 pts Refer to the previous problem. Find the standard deviation of the portfolio. Report the answer as a decimal to 4 places

Explanation / Answer

14)

mean return =0.5*0.08+0.4*0.1+0.1*0.15=0.095

15)

std devition

=sqrt(0.52*0.01+0.42*0.16+0.12*0.09+2*0.6*0.5*0.4*sqrt(0.01*0.16)+2*(-0.8)*0.5*0.1*sqrt(0.01*0.09)+2*(-0.04)*0.4*0.1*sqrt(0.16*0.09)) =0.1893

( Please try 0.1799 if above comes wrong and revert)

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