Ebenezer Scrooge has invested 60% of his money in share A and the remainder in share B. He assesses their prospects as follows:
| A |
| B | |
Expected return (%) | 15 |
| 20 | |
Standard deviation (%) | 20 |
| 22 | |
Correlation between returns |
| .5 |
| |
a. What are the expected return and standard deviation of returns on his portfolio?
b. How would your answer change if the correlation coefficient were 0 or –5?
c. Is Mr. Scrooge’s portfolio better or worse than one invested entirely in share A, or is it not possible to say?
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