Question

Your client has

$103,000

invested in stock A. She would like to build a​ two-stock portfolio by investing another

$103,000

in either stock B or C. She wants a portfolio with an expected return of at least

14.0 %

and as low a risk as​ possible, but the standard deviation must be no more than​ 40%. What do you advise her to​ do, and what will be the portfolio expected return and standard​ deviation?

	Expected Return	Standard Deviation	Correlation with A
A	15​%	45​%	1.00
B	13​%	36​%	.11
C	13​%	36​%	.27

The expected return of the portfolio with stock B is

​(Round to one decimal​ place.)The expected return of the portfolio with stock C is

​(Round to one decimal​ place.)The standard deviation of the portfolio with stock B is

​(Round to one decimal​ place.)The standard deviation of the portfolio with stock C is

​(Round to one decimal​ place.)

​(Select from the​ drop-down menu.)

You would advise your client to choose

stock B

stock B

stock C

because it will produce the portfolio with the lower standard deviation.  

Answer 1

Hence I would advise my client to choose stock B because it will produce the portfolio with lower standard deviation