Ebenezer Scrooge has invested 65% of his money in share A and the remainder in share B. He assesses their prospects as follows: A B Expected return (%) 16 21 Standard deviation (%) 23 27 Correlation between returns 0.5 What are the expected return and standard deviation of returns on his portfolio? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. How would your answer change if the correlation coefficient were 0 or −0.50? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Is Mr. Scrooge’s portfolio better or worse than one invested entirely in share A, or is it not possible to say?
Ebenezer Scrooge has invested 65% of his money in share A and the remainder in share B. He assesses their prospects as follows:
| A | B | ||
|---|---|---|---|
| Expected return (%) | 16 | 21 | |
| Standard deviation (%) | 23 | 27 | |
| Correlation between returns | 0.5 |
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What are the expected return and standard deviation of returns on his portfolio?
Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
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How would your answer change if the correlation coefficient were 0 or −0.50?
Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
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Is Mr. Scrooge’s portfolio better or worse than one invested entirely in share A, or is it not possible to say?
Portfolio standard deviation refers to how much risk the investor is facing as a result of holding a bundle of financial instruments. It mainly deals with risk associated with price volatility.
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