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What is the expected return and standard deviation

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Question - A risky portfolio contains three risky stocks listed below. The standard deviation of the risky portfolio is 30%, and the risk-free rate is 5%. The market expected return is 12% and market standard deviation is 20%.

Weight in Portfolio

Expected Return

Std. Dev.

Stock A

50%

15%

40%

Stock B

25%

20%

40%

Stock C

25%

8%

Required -

1. Suppose you choose to invest 60% of a portfolio in the risky portfolio and the rest in a risk-free money market. What is the expected return and standard deviation of your complete portfolio?

2. You form another portfolio by combining stocks A and B with equal weight. The standard deviation of the portfolio is 35%, what must be the correlation coefficient between the two stocks?

Reference no: EM133182809

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