Expected returns and portfolio variance

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Reference no: EM1311327

Expected returns and portfolio variance:

You are considering investing in two securities, X and Y. The following data are available for the two securities:

	Security X	Security Y
Expected Return	0.10	0.07
Standard deviation of returns	0.08	0.04
Beta	1.10	0.75

A. What happens to the expected return and standard deviation of returns of the portfolio in part a if 70 percent of your funds are invested in Security X and 30 percent of your funds are invested in Security Y?

B. What happens to the expected return and standard deviation of returns of the portfolio in Part a if the following conditions exist?

i) The correlation of returns between Securities X and Y is +1.0.

ii) The correlation of returns between Securities X and Y is 0.

iii) The correlation of returns between Securities X and Y is -0.7.

Reference no: EM1311327

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