You estimate that the expected return of MSFT stock is 4%, and standard deviation of MSFT stock is 9%. The expected return of AAPL stock is 3%, and standard deviation of MSFT stock is 8%. If the correlation between AAPL returns and MSFT returns is 80%, what is the expected return and standard deviation of a portfolio with $4,000 invested in MSFT and $6,000 invested in AAPL?
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.
I am having trouble solving this problem. Can you please provide me with some help? Thank you. I appreciate it.
You estimate that the expected return of MSFT stock is 4%, and standard deviation of MSFT stock is 9%. The expected return of AAPL stock is 3%, and standard deviation of MSFT stock is 8%. If the correlation between AAPL returns and MSFT returns is 80%, what is the expected return and standard deviation of a portfolio with $4,000 invested in MSFT and $6,000 invested in AAPL?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
