A portfolio consists of Stock X and Stock Y. Data for the 2 stocks is shown below.   STOCK X EXPECTED RETURn      10% STOCK X STANDARD DEVIATION     30%         STOCK Y EXPECTED RETURN      14% STOCK Y STANDARD DEVIATION     40% CORRELATION BETWEEN X AND Y     0.30 STOCK X BETA      0.90 STOCK Y BETA       0.85 %PORTFOLIO IN X      40%         %PORTFOLIO Y     60% d. Is your portfolio less risky or more risky than the market? Explain.   e. Will your portfolio likely outperform or underperform the market in a period when stocks are rapidly falling in value? Why?

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 3P: Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B...
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A portfolio consists of Stock X and Stock Y. Data for the 2 stocks is shown below.

 

STOCK X EXPECTED RETURn      10%
STOCK X STANDARD DEVIATION     30%
       
STOCK Y EXPECTED RETURN      14%
STOCK Y STANDARD DEVIATION     40%
CORRELATION BETWEEN X AND Y     0.30
STOCK X BETA      0.90
STOCK Y BETA    

 

0.85

%PORTFOLIO IN X      40%
       
%PORTFOLIO Y     60%

d. Is your portfolio less risky or more risky than the market? Explain.

 

e. Will your portfolio likely outperform or underperform the market in a period when stocks are rapidly falling in value? Why?

 

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