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Find the standard deviation of the market portfolio

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Reference no: EM133110152

1). Combining different formulas

Find the standard deviation of the market portfolio using the following information:

• The stock C has a beta of 1.3

• The standard deviation of C is 27 %

• The correlation coefficient between C and the market portfolio is 0.78

2). Comparing stocks

You have the opportunity to invest in either stock A or stock B, and we know the following:

Stock A has a standard deviation of 0.40, and the correlation between A and the market portfolio is 0.4

Stock B has a standard deviation of 0.3, and the correlation between B and the market portfolio is 0.8 The market portfolio has a variance of 0.04.

a) Which stock has the highest beta?

b) Which stock has the highest expected return? Motivate your answer using a maximum of 100 words.

Reference no: EM133110152

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