You have recently received $400,000 and you are considering investing $250,000 in the WIG and the remainder in TJH. Your analysis of each stock revealed the following information. The Expected Returns of both companies are 8% and 6% respectively and the Standard Deviations are 7% and 9% respectively. The correlation between the companies is 0.5. i. Compute the expected return of the portfolio ii. Compute the standard deviation of the portfolio  iii. Given the results and any other computations, you deem relevant from the information presented, explain whether a rational risk-averse investor would prefer to invest in the suggested portfolio or 100% in WIG or 100% in TJH

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 14P
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You have recently received $400,000 and you are considering investing $250,000 in the WIG and the remainder in TJH. Your analysis of each stock revealed the following information. The Expected Returns of both companies are 8% and 6% respectively and the Standard Deviations are 7% and 9% respectively. The correlation between the companies is 0.5.


i. Compute the expected return of the portfolio

ii. Compute the standard deviation of the portfolio 

iii. Given the results and any other computations, you deem relevant from
the information presented, explain whether a rational risk-averse investor would prefer to invest in the suggested portfolio or 100% in WIG or 100% in TJH

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