Question

   A company has a portfolio of two investments. Information on the investments is given in...

   A company has a portfolio of two investments. Information on the investments is given in the table.

Investment 1

Investment 2

Portfolio Weight

0.46

0.54

Expected/Mean Return

0.0485

0.0875

Variance

0.000484

0.001089

Covariance

0.0003267

What is the average portfolio return?

What is the standard deviation of the portfolio return?

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Answer #1

i)

Weight of investment 1=w1=0.46

Weight of investment 2=w2=0.54

Return on investment 1=r1=0.0485

Return on investment 2=r2=0.0875

Average portfolio return=0.46*0.0485+0.54*0.0875=0.06956 or 6.96%

ii)

Standard deviation of investment 1==0.000484^0.5=0.022

Standard deviation of investment 2==0.001089^0.5=0.033

Covariance=0.0003267

Standard deviation of portfolio is given as

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