Question

An investor puts 44.00% of his investment into Cisco Systems, and the remaining 56.00% into Apple Computer. The expected return on Cisco Systems stock is 9.00% this year, while the expected return on Apple Computer is 13.00%. Find the expected portfolio return for this investor. Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

An investor puts 35.00% of his investment into Cisco Systems, and the remaining 65.00% into Apple Computer. The standard deviation on Cisco Systems stock is 37.00%, while the standard deviation on Apple Computer is 27.00%. Find the standard deviation of this portfolio if the correlation between the two stocks is 0.51.

Answer 1

a). Portfolio's Expected Return = [Weight(i) * Return(i)]

=1

= [0.44 * 9%] + [0.56 * 13%] = 3.96% + 7.28% = 11.24%

b). Portfolio's Standard Deviation = [{w(Cisco) * s.d.(Cisco)}² + {w(Apple) * s.d.(Apple)}² + {2 * w(Cisco) * w(Apple) * s.d.(Cisco) * s.d.(Apple) * Correlation(Cisco,Apple)}]^1/2

= [(0.35 * 37%)² + (0.65 * 27%)² + (2 * 0.35 * 0.65 * 37% * 27% * 0.51)]^1/2

= [167.7025%² + 308.0025%² + 231.8180%²]^1/2

= [707.5230%²]^1/2 = 26.60%