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The expected return on stock W is 10% and its standard deviation is 15%. Expected return...

  1. The expected return on stock W is 10% and its standard deviation is 15%. Expected return on stock V is 16% and its standard deviation is 24%. The correlation between returns of W and V is 20%.
    1. calculate expected return and standard deviation of a portfolio that invests 40% in W and 60% in V.
    2. determine the minimum variance combination of W and V and determine its expected return and standard deviation.
    3. If the risk-free rate is 4%, determine the tangency portfolio and derive the capital market line equation.

Solutions

Expert Solution

a) expected return on portfolio- 0.1*0.4 + 0.16*0.6 = 0.04+0.096

=0.136 i.e. 13.60% is the expected return

standard deviation of portfolio= 16.67%

b) Minimum variance portflio is what you should ask some other one.

c) capital market line equation 4% +

jeff jeffy answered 2 years ago
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