Mr. Jones has a 2-stock portfolio with a total value of $510,000. $175,000 is invested in Stock A and the remainder is invested in Stock B. If standard deviation of Stock A is 16.10%, Stock B is 8.60%, and correlation between Stock A and Stock B is 0.50, what would be the expected risk on Mr. Jones’ portfolio (standard deviation of the portfolio return)? Calcualte with at least 4 decimal places and round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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.
Mr. Jones has a 2-stock portfolio with a total value of $510,000. $175,000 is invested in Stock A and the remainder is invested in Stock B. If standard deviation of Stock A is 16.10%, Stock B is 8.60%, and correlation between Stock A and Stock B is 0.50, what would be the expected risk on Mr. Jones’ portfolio (standard deviation of the portfolio return)?
Calcualte with at least 4 decimal places and round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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