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Calculate the expected return and volatility of a portfolio

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Reference no: EM132981814

Question - Consider the following expected returns, volatilities, and correlations:

Stock Expected Return Standard Deviation

Duke Energy 14% 6%

Microsoft 44% 24%

Duke Energy and Microsoft is perfectly negatively correlated (the correlation is -1).

a) Calculate the expected return and volatility of a portfolio that is equally invested in Duke Energy and Microsoft.

b) Consider a portfolio consisting of only Duke Energy and Microsoft. What percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment?

c) When we combine many stocks in a large portfolio, the risks of each sock will average out and be diversified.' Critically evaluate the above statement.

Reference no: EM132981814

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