Question

Your client has $102.000 invested in stock A She would like to budalwo-stock portfolio by investing another $102.000 in the risk as possible, but the standard deviation must be no more than 40% What do you advise her to do, and what will be the port c 140 and as low or. She was a portfolio with an expected return of expected return and standard deviation? Standard Deviation Expected Return 16% Correlation with A 100 50 12% 40 0.25 The expected return of the portfolio with stock Bis (Round to one decimal place)

Answer 1

Weight in Stock A = 102,000 / 204,000 = 50%

Weight in stock B= 102,000 / 204,000 =50%

Expected return of portfolio with stock B= Weight in Stock A * Expected return of Stock A + Weight in Stock B * Expected return of Stock B

= 50% *16% +50% * 12%

= 14%

Ans : 14%