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%.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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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