In: Finance
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:
Calculate the portfolio weights
Calculate the portfolio return.
Calculate the portfolio risk.
Compare portfolio risk with the individual stock risks and identify the benefit of the
diversification of the portfolio.