Your client has $105,000 invested in stock A. She would like to build a two-stock portfolio by investing another $105,000 in either stock B or C. She wants a portfolio with an expected return of at least 14.5% and as low a risk as possible, but the standard deviation must be no more than 40%. What do you advise her to do, and what will be the portfolio expected return and standard deviation? Expected Return A B C 15% 14% 14% Standard Deviation 45% 36% 36% Correlation with A 1.00 0.14 0.27

Your client has $105,000 invested in stock A. She would like to build a two-stock portfolio by investing another $105,000 in either stock B or C. She wants a portfolio with an expected return of at least 14.5% and as low a risk as possible, but the standard deviation must be no more than 40%. What do you advise her to do, and what will be the portfolio expected return and standard deviation? Expected Return A B C 15% 14% 14% Standard Deviation 45% 36% 36% Correlation with A 1.00 0.14 0.27

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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You invest $1000 in a portfolio. Your portfolio is composed of a risky asset with an expected rate of return of 12% and a standard deviation of 10% and a treasury bill with a rate of return of 5%. __________ of your portfolio should be invested in the risk-free asset if you want your portfolio to have a standard deviation of 9%. A) 100% B) 90% C) 50% D) 10%
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