Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:StockPercentage of PortfolioExpected ReturnStandard DeviationArtemis Inc.20%6.00%38.00%Babish & Co.30%14.00%42.00%Cornell Industries35%13.00%45.00%Danforth Motors15%3.00%47.00% What is the expected return on Andre’s stock portfolio?15.60%14.04%7.80%10.40%  Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 43%, the portfolio’s standard deviation (σp) most likely is (less than / equal to / more than) 43%.

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Asked Mar 16, 2020
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Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:
Stock
Percentage of Portfolio
Expected Return
Standard Deviation
Artemis Inc. 20% 6.00% 38.00%
Babish & Co. 30% 14.00% 42.00%
Cornell Industries 35% 13.00% 45.00%
Danforth Motors 15% 3.00% 47.00%
 
What is the expected return on Andre’s stock portfolio?
  • 15.60%
  • 14.04%
  • 7.80%
  • 10.40%
 
 
Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 43%, the portfolio’s standard deviation (σp) most likely is (less than / equal to / more than) 43%.
 


 
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Calculation of weighted return

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Calculation of expected return

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