Question

Use the following information to calculate the expected return and standard deviation of a portfolio that is 60 percent invested in 3 Doors, Inc., and 40 percent invested in Down Co.: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 3 Doors, Inc. 11% 41 Expected return, E(R) Standard deviation, 0 Correlation Down Co. 12% 43 0.26 Expected return Standard deviation doo

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

в с D E Expected return Std. Deviation of return Correlation 3 Doors 11.00% 41.00% 0.26 Down Co. 12.00% 43.00% Portfolio invested in 3 Doors Portfolio invested in Down co. Expected return 60% 40% 11.40% 33.48% Std. deviation of return

Cell reference -

3 Doors Down Co. Expected return Std. Deviation of return Correlation 0.11 0.41 0.26 0.12 0.43 Portfolio invested in 3 Doors Portfolio invested in Down co. Expected return Std. deviation of return 0.6 =1-C7 =C7*C3+C8*D3 =SQRT{C7*C4)^2+(C8*D4)^2+2*C7*C8*C4*D4*C5)

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