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The expected return of ABC is 15 percent, and the expected return of DEF is 23...

The expected return of ABC is 15 percent, and the expected return of DEF is 23 percent. Their standard deviations are 10 percent and 23 percent, respectively, and the correlation coefficient between them is zero.

a.  

What is the expected return and standard deviation of a portfolio composed of 25 percent ABC and 75 percent DEF?

b.  

What is the expected return and standard deviation of a portfolio composed of 75 percent ABC and 25 percent DEF?

c.  

Would a risk-averse investor hold a portfolio made up of 100 percent of ABC?

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Answer #1

The expected return is the weighted average return of Weights and their respective expected returns

The standard deviation is calculated as

Since correlation is 0 the last term is ignored

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