Ebenezer Scrooge has invested 50% of his money in share A and the remainder in share...

Ebenezer Scrooge has invested 50% of his money in share A and the remainder in share B. He assesses their prospects as follows:

	A		B
Expected return (%)	16		18
Standard deviation (%)	21		25
Correlation between returns		.6

a. What are the expected return and standard deviation of returns on his portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)


Expected return	%
Standard deviation	%

b. How would your answer change if the correlation coefficient were 0 or –.6? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

	Correlation Coefficient 0	Correlation Coefficient –.6
Standard deviation	%	%

c. Is Mr. Scrooge’s portfolio better or worse than one invested entirely in share A, or is it not possible to say?

	Better
	Worse
	Not possible to say

Solutions

Expert Solution

jeff jeffy answered 6 months ago

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