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1. The following table presents the expected returns of three stocks and the risk free rate. Stock A B 4% Expected return What is the expected return and risk on an equally weighted portfolio composed of these four assets? The standard deviation of stock A is 10% and the covariance between A and B equals 0.0045. The correlation matrix between A, B and Cis: 8% 14% 4% Correl A В A 0.3 0.7 0.3 0.7 B 1 0.5 0.5 Combining stocks A and C in a portfolio in equal proportions will result in a variance of1.95%. 1

1. The following table presents the expected returns of three stocks and the risk free rate. Stock A B 4% Expected return What is the expected return and risk on an equally weighted portfolio composed of these four assets? The standard deviation of stock A is 10% and the covariance between A and B equals 0.0045. The correlation matrix between A, B and Cis: 8% 14% 4% Correl A В A 0.3 0.7 0.3 0.7 B 1 0.5 0.5 Combining stocks A and C in a portfolio in equal proportions will result in a variance of1.95%. 1

Corporate Fin Focused Approach
Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter6: Risk And Return
Section: Chapter Questions
Problem 14P
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1. The following table presents the expected returns of three stocks and the risk free rate. в 4% Stock A 8% Expected return What is the expected return and risk on an equally weighted portfolio composed of these four assets? The standard deviation of stock A is 10% and the covariance between A and B equals 0.0045. The correlation matrix between A, B and C is: 14% 4% Correl B A 1 0.3 0.7 B 0.3 0.5 0.5 Combining stocks A and C in a portfolio in equal proportions will result in a variance of 1.95%. 0.7
Transcribed Image Text:1. The following table presents the expected returns of three stocks and the risk free rate. в 4% Stock A 8% Expected return What is the expected return and risk on an equally weighted portfolio composed of these four assets? The standard deviation of stock A is 10% and the covariance between A and B equals 0.0045. The correlation matrix between A, B and C is: 14% 4% Correl B A 1 0.3 0.7 B 0.3 0.5 0.5 Combining stocks A and C in a portfolio in equal proportions will result in a variance of 1.95%. 0.7
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