An investor puts 30% of his funds into Company A’s shares and 70% of his funds...

An investor puts 30% of his funds into Company A’s shares and 70% of his funds into

Company B’s shares.

The expected return on Company A’s shares is 12% and the expected return on Company B’s shares is 20%. The standard deviation of returns on Company A is 10% and the standard deviation of returns on Company B is 22%.

Required:

a) If the correlation coefficient is +0.7 what does this mean?

b) Calculate the expected return, variance and standard deviation of the portfolio?

c) Using the same information, repeat part b), but this time with a correlation coefficient of (-0.7)

Expert Solution

jeff jeffy answered 2 years ago

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