Return and the standard deviation of portfolio returns

Reference no: EM13194906

Over the past three years (Year 1 to Year 3) the stocks of two companies, ONE Plc and TWO Plc, generated annual returns to shareholders as follows:

ONE Plc	TWO Plc
Year 1	-5%	2%
Year 2	15%	1%
Year 3	12%	4%

For each of the three years (Year 1, Year 2, Year 3), calculate the annual return generated by a portfolio that is made up of the two stocks ONE and TWO with 80 percent of the portfolio invested in stock ONE and the rest in stock TWO.

(ii) Based on the annual portfolio returns, calculate the expected (average) portfolio return and the standard deviation of portfolio returns.

(iii) Can the standard deviation of the portfolio returns be approximated as the weighted average of the individual stock returns? Explain why or why not.

Reference no: EM13194906

Questions Cloud

Compute the heat lost by the hot water : Calculate the heat lost by the hot water, Calculate the heat gained by the cold water, Calculate the calorimeter constant, using the delta T of the cold water.

Average collection period to the industry average : How much additional financing can be obtained from receivables if Anderson institutes more stringent credit and collection policies and is able to reduce its average collection period to the industry average and calculate the firm's current, quick,..

Calculate the expected returns and the risk premia : The Capital Asset Pricing Model (CAPM) holds, calculate the expected returns and the risk premia of the following two portfolios.

Compute the volume and mass required to make : Calculate the volume and mass required to make 0.1m solutions of your assigned acid (HNO3) and conjugate base

Return and the standard deviation of portfolio returns : Based on the annual portfolio returns, calculate the expected (average) portfolio return and the standard deviation of portfolio returns.

State what effect would an increase in temperaure : What effect would an increase in temperaure have on the experimentally determined Ksp of KHT?

State how many kg of chlorine must be fed to the plant : The chlorinator feed rate is 4.0 mg/L and the free chlorine residual is 1.5 mg/L. (a) What is the chlorine demand (mg/L)? (b) How many kg of chlorine must be fed to the plant on a daily basis?

Would you buy the bond : A ZERO COUPON BOND with $100 face value is redeemable at par in exactly four years. You see from financial times that you can currently buy IT FOR $68.3.

The difference between nucleophilic centers and nucleophiles : the difference between nucleophilic centers, nucleophiles, electrophilic centers, and electrophiles. Lastly, tell me how to identify all four of these in a given molecule.

User Account

All Pages