Question

What is the expected return of a portfolio consisting of 60% security 1 and 40% security 2? What is the beta of a portfolio consisting of 60% security 1 and 40% security 2? What is the standard deviation of a portfolio consisting of 60% security 1 and 40% security 2 if the correlation coefficient between securities is zero? What should be the weight of security 1 in a portfolio consisting of security 1 abd 2 to minimize the portfolios standard deviation if the correlation coefficients between the two are zero? Security Expected Return Standard Deviation Beta 0.10 0.24 1.25 0.08 0.20 0.80 #1 #2

Answer 1

A. Calculation of expected return of the portfolio:

The weight in the stock 1= 0.60
The weight in the stock 2= 0.40
Expected return of stock 1 = 10%
Expected return of stock 2 = 8%

The expected return of the portfolio: weighted average return.
(0.60 x10)+(0.40 x8)
=9.2%

B. Calculation of Beta of the portfolio:

The weight in the stock 1= 0.60
The weight in the stock 2= 0.40
Beta of stock 1 = 1.25
Beta of stock 2 = 0.80

The expected return of the portfolio: weighted average Beta.
(0.60 x1.25)+(0.40 x0.80)
=1.07

C. The standard deviation of the portfolio = 16.47%

D. The weight in stock 1 to have a minimum standard deviation Indus portfolio = 0.41 or 41%

د پاسه د دا 60 b = رحبا هود ؟ (ہد = ا لهاeوما) 8 Coefficent) = 0 Sid of portfolio ( ۲) (محیا) 2 + ( ه ) ( ن = * 0 . 2 x 20 ) * 2 ( 6 - x با-ن) و (هاد رک-0) | ده x مع لاباء) الا -4 16.4). = (ها) - ۲۶ - مها :D ۲) * ( - 4 ه - (مد) (مد) + (64 = ه اپه د