What is the expected return on Andre’s stock portfolio? 7.28% 9.70% 14.55% 13.10% 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 36%, the portfolio’s standard deviation (σp ) most likely is 36%. more than equal to less than
What is the expected return on Andre’s stock portfolio? 7.28% 9.70% 14.55% 13.10% 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 36%, the portfolio’s standard deviation (σp ) most likely is 36%. more than equal to less than
Chapter17: The Management Of Cash And Marketable Securities
Section: Chapter Questions
Problem 11QTD
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Portfolio expected return and risk
A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor’s expected rate of return .
Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.
Consider the following case:
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% | 31.00% |
| Babish & Co. | 30% | 14.00% | 35.00% |
| Cornell Industries | 35% | 11.00% | 38.00% |
| Danforth Motors | 15% | 3.00% | 40.00% |
What is the expected return on Andre’s stock portfolio?
7.28%
9.70%
14.55%
13.10%
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 36%, the portfolio’s standard deviation (σp
) most likely is 36%.
more than
equal to
less than
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