Teena is considering investing in Stock A and stock B. She plans to invest $ 25,000 in the low risk stock and $ 50,000 in the high-risk stock. You have been given the following information about these two stocks in the table below: Stock A B E(R) 15% 10 ? 25% 22% Correlation between A and B 0.20 Based on the given information above, you are required to: i. Calculate the portfolio weights ii. Calculate the portfolio return. iii. Calculate the portfolio risk. iv. Compare portfolio risk with the individual stock risks and identify the benefit of the diversification of the portfolio.

Teena is considering investing in Stock A and stock B. She plans to invest $ 25,000 in the low risk stock and $ 50,000 in the high-risk stock. You have been given the following information about these two stocks in the table below: Stock A B E(R) 15% 10 ? 25% 22% Correlation between A and B 0.20 Based on the given information above, you are required to: i. Calculate the portfolio weights ii. Calculate the portfolio return. iii. Calculate the portfolio risk. iv. Compare portfolio risk with the individual stock risks and identify the benefit of the diversification of the portfolio.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 13P

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