Question

You have a three-stock portfolio. Stock A has an expected return of 14 percent and a standard deviation of 35 percent, Stock B has an expected return of 18 percent and a standard deviation of 53 percent, and Stock C has an expected return of 17 percent and a standard deviation of 35 percent. The correlation between Stocks A and B is .07. between Stocks A and C is 20, and between Stocks B and C is 19. Your portfolio consists of 45 percent Stock A, 25 percent Stock B, and 30 percent Stock C. Calculate the expected return and standard deviation of your portfolio. The formula for calculating the variance of a three-stock portfolio is: (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Print Op2 = XA² A2+xB082 + xc? oc?+ 2xAXBAOBCorr(RARB) + 2XAXCOAOC Corr(RA.Rc) + 2XBXCOBOCCorr(Rs.Rc) Expected return Standard deviation

Answer 1

Expected Retur =Weight of A*Return of A +Weight of B*Return of B+Weight of C*Return of C
=45%*14%+25%*18%+30%*17% =15.90%

Standard Deviation =((45%*35%)^2+(25%*53%)^2+(30%*35%)^2+2*45%*25%*35%*53%*0.07+2*25%*30%*53%*35%*0.19+2*45%*30%*35%*35%*0.20)^0.5 =26.12%