Question

(Computing the standard deviation for a portfolio of two risky investments Mary Gulo recently graded from Nichols State Unversity and is a s to begin investing her meget vigs as a way of ww what she has learned in business School Specifically, she is evaluating an investment in a pontono comprised of two firms common stock. She has collected the flowing information about the common stock of Fm Aandom BBW and standard deviation in portfolio a Mary invests at the money in each of the common stocks, what is the portfolios expected t o b. Answer part a where the correlation between the two common stock investment is to c. Answer part a where the correlation between the two common stock investments is 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 of the portfolio a Mary decides to invest 10 wo decimal places) of her money in Fim As common stock and 50% in common stock and the comiation between the stocks is 0.40, then the expected rate of return in the portis 175% Round The standard deviation in the port is 1804% Hound to two decimal places) b. If Mary decides to invest 50% of the money in Form As common stock and son in Form to two decimal places.) 's common stock and the correlation between the two stocks , then the expected to return in the portfolos 123% Round

Answer 1

1.
=0.5*0.17+0.5*0.18=17.50%

2.
=SQRT((0.5*0.19)^2+(0.5*0.24)^2+2*0.5*0.19*0.5*0.24*0.4)=18.0402328144622%

3.
=0.5*0.17+0.5*0.18=17.50%

4.
=SQRT((0.5*0.19)^2+(0.5*0.24)^2+2*0.5*0.19*0.5*0.24*0)=15.305227865014%

5.
=0.5*0.17+0.5*0.18=17.50%

6.
=SQRT((0.5*0.19)^2+(0.5*0.24)^2+2*0.5*0.19*0.5*0.24*1)=21.50%

7.
=0.5*0.17+0.5*0.18=17.50%

8.
=SQRT((0.5*0.19)^2+(0.5*0.24)^2+2*0.5*0.19*0.5*0.24*(-1))=2.50%

9.
As correlation decreases, risk decreases
As correlation increases, risk increases