A portfolio consists of two stocks: Stock Expected Return Standard Deviation Weight Stock 1 10% 15% 0.30 Stock 2 13% 20% ??? The correlation between the two stocks’ return is 0.50(a) Calculate the expected return and standard deviation of the portfolio. Expected Return: Standard Deviation:
A portfolio consists of two stocks: Stock Expected Return Standard Deviation Weight Stock 1 10% 15% 0.30 Stock 2 13% 20% ??? The correlation between the two stocks’ return is 0.50(a) Calculate the expected return and standard deviation of the portfolio. Expected Return: Standard Deviation:
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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A portfolio consists of two stocks:
| Stock | Expected Return | Standard Deviation | Weight |
| Stock 1 | 10% | 15% | 0.30 |
| Stock 2 | 13% | 20% | ??? |
The correlation between the two stocks’ return is 0.50(a) Calculate the expected return and standard deviation of the portfolio.
Expected Return:
Standard Deviation:
b) (i) Briefly explain, in general, when there would be “benefits of diversification” (for any portfolio of two securities).
(ii) Describe whether the above portfolio would exhibit “benefits of diversification” (and why). [No calculations are required.]
(c) Show your calculations re: whether the above portfolio exhibits “benefits of diversification”and indicate whether it does/doesn’t (and why).
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