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What is the expected return and standard deviation

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Reference no: EM132789572

1. Given the following information about Stocks A and B:σAAσBBCorr(A,B) = -0.5

=.10                                               E(R)=.12

=.05                                                E(R)=.07

a. Calculate what weights of stock A and B will be necessary to achieve the minimum variance portfolio (a portfolio comprised of only stocks A and B).

(Hint: Please refer to the textbook (Chapter 7, Example 7.2 Optimal Risky Portfolio)

b. What is the expected return and standard deviation of the minimum variance portfolio that you calculated in part (a) above?

2. Given the following two stock portfolio, with 40% invested in Stock A and 60% invested in Stock B:

State of Economy Probability Stock A (30%) Stock B (70%)

Good .25 25% 10%

Fair .50 10% 5%

Poor .25 5% 0%

Expected return

Standard deviation

CV

a. Calculate the expected return and standard deviation for Stock A and Stock B, respectively.

b. Calculate the Coefficient of Variation for Stock A and Stock B, respectively.

c. Calculate the Pearson correlation coefficient between Stock A and Stock B. What are the upper and lower bounds for the correlation coefficient?

d. Calculate the expected return of the portfolio.

e. Calculate the expected standard deviation of the portfolio.

Reference no: EM132789572

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