The stock of Bruin, Inc., has an expected return of 16 percent and a standard deviation...

The stock of Bruin, Inc., has an expected return of 16 percent and a standard
deviation of 30 percent. The stock of Wildcat Co. has an expected return of 8
percent and a standard deviation of 14 percent. The correlation between the two
stocks is .20.
Required:
a) What are the expected return and standard deviation of a portfolio that is
40 percent invested in Bruin, Inc., and 60 percent invested in Wildcat Co.?
b) What is the standard deviation if the correlation is +1? 0? -1?
c) As the correlation declines from + to -1 here, what do you see happening
to portfolio volatility, why?
d) What are the expected return and standard deviation on the minimum
variance portfolio?

Expert Solution

ANSWER::

Portfolio expected return is calculated with expected weighted average returns.

Portfolio variance indicates the volatility of the portfolio.

Standard deviation is square root of variance.

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orchestra answered 1 year ago

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