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Expected returns and standard deviations of three risky assets are as follows: Expected Return Standard Deviations Correlations A B C A 11% 30% 1.0 0.3 0.15 B 14.5% 45% 0.3 1.0 0.45 C 9% 30% 0.15 0.45 1.0 1. Calculate the expected return and standard deviations of a portfolio of stocks A, B and C. Assume an equal investment in each stock. 2. Compute the Sharpe ratio of a portfolio that has 30% in A, 30% in B and 40% in C. The risk-free interest rate is 4%.

Expected returns and standard deviations of three risky assets are as follows: Expected Return Standard Deviations Correlations A B C A 11% 30% 1.0 0.3 0.15 B 14.5% 45% 0.3 1.0 0.45 C 9% 30% 0.15 0.45 1.0 1. Calculate the expected return and standard deviations of a portfolio of stocks A, B and C. Assume an equal investment in each stock. 2. Compute the Sharpe ratio of a portfolio that has 30% in A, 30% in B and 40% in C. The risk-free interest rate is 4%.

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 3P: Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B...
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Expected returns and standard deviations of three risky assets are as follows:

  Expected Return Standard Deviations Correlations
A B C
A 11% 30% 1.0 0.3 0.15
B 14.5% 45% 0.3 1.0 0.45
C 9% 30% 0.15 0.45 1.0

1. Calculate the expected return and standard deviations of a portfolio of stocks A, B and C. Assume an equal investment in each stock.

2. Compute the Sharpe ratio of a portfolio that has 30% in A, 30% in B and 40% in C. The risk-free interest rate is 4%.

3. Assume a portfolio of asset B and C. Determine the weight in asset B, such that the total portfolio risk is minimized.

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