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QUESTION 12 The investor is presented with the two following stocks: Expected Return Standard Deviation Stock...

QUESTION 12

  1. The investor is presented with the two following stocks:

    Expected Return

    Standard Deviation

    Stock A

    10%

    30%

    Stock B

    20%

    60%

    Assume that the correlation coefficient between the stocks is -1. What is the standard deviation of the return on the portfolio that invests 30% in stock A?

    A.

    26%
    B.

    49%
    C.

    30%
    D.

    33%
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Answer #1

Investment made in Stock A = 30%

Remaining Investment in Stock B = 70%

Correlation Coefficient between Stocks = -1

Calculating the Standard Deviation of Return:-

S.D. = 0.33 or 33%

Option D

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