Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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4.23 The following shows the returns and standard de viations of three stock in-dices: US, Germany and Japan:
|
Expected return |
Standard deviation | |
|
US |
16% | 21% |
|
Germany |
20% | 25% |
|
Japan |
17% | 27% |
The correlation matrix of the three stock indices is as follows:
|
US |
Germany | Japan | |
|
US |
100% | ||
|
Germany |
37% | 100% | |
|
Japan |
26% | 33% | 100% |
You construct a portfolio of the three markets with 15% weight in US, 40% weight in Germany and 45% weight in Japan. Calculate the expected return and standard deviation of the return of the portfolio.
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