How will the addition of the company shares change kate

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Reference no: EM132822848

Kate Smith owns an equity portfolio worth £80,000. She recently received a bonus of £20,000 in shares in the company which employs her. Kate's financial adviser has provided her with the following estimates:

Risk and Return Characteristics

Standard Deviation of Annual Returns
Original portfolio
Expected Annual Returns 9%
Standard Deviation of Annual Returns 20%
Company share
Expected Annual Returns 14%
Standard Deviation of Annual Returns 30%

The correlation coefficient of the company share returns with her original portfolio returns is 0.70.

Problem a) How will the addition of the company shares change Kate's original portfolio in terms of reward and risk?

Reference no: EM132822848

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