Irene Adler is considering investing in the common stock of Holmes and Watson. T

Question

Irene Adler is considering investing in the common stock of Holmes and Watson. The following data are available for the two securities. .

................... Expected Return ..... Standard Deviation

Holmes .............. 0.12 ......................... 0.08

Watson ............. 0.16 .......................... 0.20 .

If she invests 60% of her funds in Holmes and 40% in Watson, and if the correlation of returns between these two securities is 0.45, what is the portfolio’s expected return and standard deviation? .

A. 14.4% and 13.70%

B. 13.6% and 11.03%

C. 13.6% and 13.70%

D. 14.4% and 11.03%

E. None of the above

Explanation / Answer

Irene Adler is considering investing in the common stock of Holmes and Watson. T

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