meager savings as a way of applying what she has learned in business school. Specifically, she is evaluating an investment in a portfolio comprised of two firms' common stock. She has collected the following information about the common stock of Firm A and Firm B: a. If Mary invests half her money in each of the two common stocks, what is the portfolio's expected rate of return and standard deviation in portfolio return? b. Answer part a where the correlation between the two common stock investments is equal to zero. c. Answer part a where the correlation between the two common stock investments is equal to +1. d. Answer part a where the correlation between the two common stock investments is equal to -1. e. Using your responses to questions a-d, describe the relationship between the correlation and the risk and return of the portfolio. a. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is 0.40, then the expected rate of return in the portfolio is%. (Round to two decimal places) The standard deviation in the portfolio is%. (Round to two decimal places.) b. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is zero, then the expected rate of return in the portfolio is%. (Round to two decimal places.) The standard deviation in the portfolio is%. (Round to two decimal places.) c. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation coefficient between the two stocks is +1, then the expected rate of return in the portfolio is%. (Round to two decimal places.)
meager savings as a way of applying what she has learned in business school. Specifically, she is evaluating an investment in a portfolio comprised of two firms' common stock. She has collected the following information about the common stock of Firm A and Firm B: a. If Mary invests half her money in each of the two common stocks, what is the portfolio's expected rate of return and standard deviation in portfolio return? b. Answer part a where the correlation between the two common stock investments is equal to zero. c. Answer part a where the correlation between the two common stock investments is equal to +1. d. Answer part a where the correlation between the two common stock investments is equal to -1. e. Using your responses to questions a-d, describe the relationship between the correlation and the risk and return of the portfolio. a. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is 0.40, then the expected rate of return in the portfolio is%. (Round to two decimal places) The standard deviation in the portfolio is%. (Round to two decimal places.) b. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is zero, then the expected rate of return in the portfolio is%. (Round to two decimal places.) The standard deviation in the portfolio is%. (Round to two decimal places.) c. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation coefficient between the two stocks is +1, then the expected rate of return in the portfolio is%. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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d. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation coefficient between the two stocks is -1, then the expected rate of
return in the portfolio is%. (Round to two decimal places.)
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Transcribed Image Text:(Computing the standard deviation for a portfolio of two risky investments) Mary Guilott recently graduated from Nichols State University and is anxious to begin investing her meager savings
as a way of applying what she has learned in business school. Specifically, she is evaluating an investment in a portfolio comprised of two firms' common stock. She has collected the following
information about the common stock of Firm A and Firm B:
a. If Mary invests half her money in each of the two common stocks, what is the portfolio's expected rate of return and standard deviation in portfolio return?
b. Answer part a where the correlation between the two common stock investments is equal to zero.
c. Answer part a where the correlation between the two common stock investments is equal to +1.
d. Answer part a where the correlation between the two common stock investments is equal to 1.
e. Using your responses to questions a-d, describe the relationship between the correlation and the risk and return of the portfolio.
a. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is 0.40, then the expected rate of return in
the portfolio is%. (Round to two decimal places.)
2
The standard deviation in the portfolio is%. (Round to two decimal places.)
b. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is zero, then the expected rate of return in
the portfolio is%. (Round to two decimal places.)
The standard deviation in the portfolio is %. (Round to two decimal places.)
c. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation coefficient between the two stocks is +1, then the expected rate of
return in the portfolio is%. (Round to two decimal places.)
The standard deviation in the portfolio is %. (Round to two decimal places.)
d. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation coefficient between the two stocks is -1, then the expected rate of
return in the portfolio is%. (Round to two decimal places.)
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