What is the expected return on Andre’s stock portfolio? 7.28% 9.70% 14.55% 13.10% Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 30%, the portfolio’s standard deviation (σpσp) most likely is 30%.
What is the expected return on Andre’s stock portfolio? 7.28% 9.70% 14.55% 13.10% Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 30%, the portfolio’s standard deviation (σpσp) most likely is 30%.
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter11: Investment Planning
Section: Chapter Questions
Problem 6LO: Describe an investment portfolio and how youd go about developing, monitoring, and managing a...
Related questions
Question
A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor’s expected rate of return .
Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.
Consider the following case:
Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:
Stock
|
Percentage of Portfolio
|
Expected Return
|
Standard Deviation
|
---|---|---|---|
Artemis Inc. | 20% | 6.00% | 25.00% |
Babish & Co. | 30% | 14.00% | 29.00% |
Cornell Industries | 35% | 11.00% | 32.00% |
Danforth Motors | 15% | 3.00% | 34.00% |
What is the expected return on Andre’s stock portfolio?
7.28%
9.70%
14.55%
13.10%
Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 30%, the portfolio’s standard deviation (σpσp) most likely is 30%.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Pfin (with Mindtap, 1 Term Printed Access Card) (…](https://www.bartleby.com/isbn_cover_images/9780357033609/9780357033609_smallCoverImage.jpg)
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning
![Pfin (with Mindtap, 1 Term Printed Access Card) (…](https://www.bartleby.com/isbn_cover_images/9780357033609/9780357033609_smallCoverImage.jpg)
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning