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Asked Nov 24, 2019
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I am stuck on how to do this problem and I need to understand how to set it up in excel with formulas.

4.You want to combine the following two stocks into a portfolio: Nike and Microsoft. The
last seven years of returns are listed below. The correlation between the two stocks is
0.65. You willput 54% of your money into Nike and 46% into Microsoft. What would
be the expected return and standard deviation of returns of your portfolio?
3a
-7%a
3%a
40
20
52%
40%a
-15%aa
1%a
19%a
12%a
14%a
Nike
22%a
24%a
Microsofta
16%a
-8%
-7%a
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4.You want to combine the following two stocks into a portfolio: Nike and Microsoft. The last seven years of returns are listed below. The correlation between the two stocks is 0.65. You willput 54% of your money into Nike and 46% into Microsoft. What would be the expected return and standard deviation of returns of your portfolio? 3a -7%a 3%a 40 20 52% 40%a -15%aa 1%a 19%a 12%a 14%a Nike 22%a 24%a Microsofta 16%a -8% -7%a

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Expert Answer

Step 1

Calculation of Expected Return and Standard Deviation of Portfolio:

The expected return of portfolio is 12.02% and standard deviation of portfolio is 19.61%.

Excel Sprea...

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А В C E Variance of Returns 1 Year 2 Company Microsoft Microsoft 0.0026449 0.0318878 0.0003449 0.0284163 0.0435020 0.0047020 0.1454878 0.0908592 0.0066306 0.0200020 0.0000020 0.0037735 0.0832735 0.0078449 Nike Nike -8% 19% 12% -7% 2 -7% 5 3% 40% 6 4 52% 7 5 22% 24% 14% 8 6 16% 7 -15% 1% Average Returns Portfolio Weights 13.86% 10 9.86% 54% 11 46% Total Variance of Returns 0.28189 12 0.18749 Standard Deviation of Returns 53.09% 13 43.30% 0.65 14 Correlation Expected Return of Portfolio 15 12.02% 19.61% 16 Standard Deviation of Portfolio lco t

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