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 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?
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
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?
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