2. Portfolio Expected Return [LO1] You own a portfolio that has $3,480 invested in Stock A and $7,430 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return on the portfolio?

2. Portfolio Expected Return [LO1] You own a portfolio that has $3,480 invested in Stock A and $7,430 invested in Stock B. If the expected returns on these stocks are 8 percent and 11 percent, respectively, what is the expected return on the portfolio?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

2. Portfolio Expected Return [LO1] You own a portfolio
that has $3,480 invested in Stock A and $7,430 invested in
Stock B. If the expected returns on these stocks are 8 percent
and 11 percent, respectively, what is the expected return on
the portfolio?

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2 Problem 2: Consider a market composed of only two risky assets, A and B, with the following properties: a StockA Expected return 25%, SD 20% StockB Expected return 15%, SD 25% a) Suppose their correlation is 0.8. What is the expected return of the following portfolios: one that invests 0% in A, one that invests 10% in A, 20% in A and so on until 100%? Plot the portfolio frontier formed by these portfolios.b) Repeat part (1) under the assumption that the correlation is -0.8.c) Explain in detail what is the intuition behind the difference across the answers you found for part (1) and part (2).
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