Mary, a finance student at Amity student, holds a portfolio which consists three stocks (one each) of: stock A, stock B, and stock C. Please note the following information about these stocks: Price Return Standard deviation Stock A $120 20% 0.35 Correlation between A and B Correlation between B and C Correlation between A and C Questions: Stock B Stock C $84 15% 0.1 0.3 0.2 0.4 $96 10% 0.5 Please calculate the portfolio's expected a- return b- and standard deviation Please calculate the portfolio's variance
Mary, a finance student at Amity student, holds a portfolio which consists three stocks (one each) of: stock A, stock B, and stock C. Please note the following information about these stocks: Price Return Standard deviation Stock A $120 20% 0.35 Correlation between A and B Correlation between B and C Correlation between A and C Questions: Stock B Stock C $84 15% 0.1 0.3 0.2 0.4 $96 10% 0.5 Please calculate the portfolio's expected a- return b- and standard deviation Please calculate the portfolio's variance
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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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:Mary, a finance student at Amity student,
holds a portfolio which consists three stocks
(one each) of: stock A, stock B, and stock C.
Please note the following information about
these stocks:
Price
Return
Stock A Stock B
$120
20%
Standard deviation 0.35
Correlation between A and B
Correlation between B and C
a-
Questions:
$84
15%
0.1
0.3
Correlation between A and C 0.4
0.2
Stock C
$96
10%
0.5
Please calculate the portfolio's expected
return
b-
and standard deviation
Please calculate the portfolio's variance
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