Question

B 12-8 (book/static) Question Help Stocks A and B have the following returns: 1 2 3 4 5 Stock A 0.10 0.07 0.15 -0.05 0.08 Stock B 0.06 0.02 0.05 0.01 -0.02 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.46, what is the expected return and standard deviation of a portfolio of 70% stock A and 30% stock B? a. What are the expected returns of the two stocks? The expected return for stock is (Round to three decimal places) Enter your answer in the answer box and then click Check Answer. 5 paris remaining Clear All Check Answer

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Answer 1

1 2 70% Stock A 0.1 0.07 0.15 -0.05 3 30% Stock B 0.06 0.02 0.05 0.01 -0.02 2.40% 3.21% 4 0.08 7.00% 7.38% 5 Expected return Standard deviation Expected return(Portfolio) Correlation SD of portfolio 5.62% 0.46 5.68%

Formulae

А 00 с 3556 0.7 0.3 3557 Stock A Stock B 3558 1 0.1 35592 0.07 0.06 0.02 0.05 0.01 3560 3 0.15 -0.05 35614 35625 3563 Expected return 3564 Standard deviation 3565 Expected return(Portfolio) 3566 Correlation 3567 SD of portfolio 0.08 -0.02 |=AVERAGE(B3558:B3562) |=AVERAGE(C3558:C3562) =STDEV(B3558:B3562) |=STDEV(C3558:C3562) =B3563*B3556+C3563*C3556 0.46 =(B3556^2*B3564^2 + C3556^2*C3564^2 + 2*B3556*C3556*B3564*C3564*B3566)^0.5