What is the expected return of your portfolio

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Reference no: EM13196147

Question 1:

You invest 30% in Ham and 70% in Cheese.

Time	Ham	Cheese
1	-.04	.11
2	.15	.41
3	.21	-.13
4	.18	.39

Find the return and variance on the portfolio. You must calculate: expected return for both firms; standard deviation or variance (assume it is a population (n observations)) for both firms; correlation or covariance between Ham and Cheese.

Question 2:

Suppose stock returns can be explained by the following three factor model:

R_i = R_F + β₁F₁ + β₂F₂ - β₃F₃

Assume there is no firm-specific risk. The information for each stock is presented here:

	β₁	β₂	β₃
Stock A	1.45	.80	.05
Stock B	.73	1.25	-.20

The risk premiums for the factors are 5.3 percent, 3.9 percent, and 4.2 percent, respectively. If you create a portfolio with 60 percent invested in stock A and the remainder in stock B, and the risk-free rate is 2 percent, what is the expected return of your portfolio?

Reference no: EM13196147

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