# 2. Portfolio expected return and risk A collection of financial assets and securities is referred to...

###### Question:

2. Portfolio expected return and risk A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfollo will not generate the investor's expected rate of return Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio. Consider the following case: Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Stock Percentage of Portfolio Expected Return Standard Deviation 8.00 % 28.00% Artemis Inc. 20% 30% 14.00% 32.00% Babish & Co. 35% 12.00% 35.00% Comell Industries 37.00 % Danforth Motors 15% 3.00% What is the expected return on Andre's stock portfolio? 15.68% 10.45% 14.11% 7.84%
30 % Babish & Co. 14.00 % 32.00% 35.00% Comell Industries 35% 12.00% 37.00 % 3.00 % Danforth Motors 15 % What is the expected return on Andre's stock portfolio? 15.68% 10.45% 14.11% 7.84% Suppose each stock in Andre's portfolio has a correlation coefficient of 0.40 (p0.40) with each of the other stocks. The market's average standard deviation is approximately 20 %, and the weighted average of the risk of the individual securities in the partially diversified four-stock portfolio is 33% If 40 additional, randomly selected stocks with a correlation coefficient of 0.30 with the other stocks in the portfollo were added to the portfolio, what effect would this have on the portfolio's standard deviation (e,) O It would gradually settle at about 35 % It would stay constant at 33%. O It would gradually settle at approximately 20% It would decrease gradually, settling at about 0%

#### Similar Solved Questions

##### What are the limitations of analyzing the industry that Netflix currently competes in by using Porter's...
What are the limitations of analyzing the industry that Netflix currently competes in by using Porter's 5 Forces?...
##### Write a brief note in your own words on Leased lines with brief introduction of its...
Write a brief note in your own words on Leased lines with brief introduction of its type of services. Write a brief note in your own words on Leased lines with brief introduction of its type of services....
##### On January 8, the end of the first weekly pay period of the year, Regis Company's...
On January 8, the end of the first weekly pay period of the year, Regis Company's payroll register showed that its employees earned $23,760 of office salaries and$60,840 of sales salaries Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.20%, FICA...
##### If Justin races his Chevy Camaro South down I-540 for 2560 meters in 60 seconds. What is his velocity?
If Justin races his Chevy Camaro South down I-540 for 2560 meters in 60 seconds. What is his velocity?...
##### . A granite wall has a thickness of 0.50 m and a thermal conductivity of 2.1...
. A granite wall has a thickness of 0.50 m and a thermal conductivity of 2.1 W/(m · C°). The temperature on one face of the wall is 5.2 °C and 20.0 °C on the opposite face. How much heat is transferred in one hour through each square meter of the granite wall?...
##### How do you calculate tan(cot^-1 (9))?
How do you calculate tan(cot^-1 (9))?...
##### The potential at location A is 571 V. A positively charged particle is released there from...
The potential at location A is 571 V. A positively charged particle is released there from rest and arrives at location B with a speed vB. The potential at location C is 1120 V, and when released from rest from this spot, the particle arrives at B with twice the speed it previously had, or 2 vB. Fin...
##### Multiple Choice Question We have two independent populations A and B, with means H and fly...
Multiple Choice Question We have two independent populations A and B, with means H and fly and variances o and ož, respectively. Parameter of interest is difference 6 = H1 – M2. To estimate the difference 6, we use ê = X - Y, where X and Y are the sample means from the respective po...
##### I choose the topic about “Singapore” but if not, then any country is fine. thanks Name:...
I choose the topic about “Singapore” but if not, then any country is fine. thanks Name: Score: /32 Project covers this CAAHEP competency: V.A.3.b, V.A.3.c. Directions: • Using the LRC resources, research a diverse population (must be different than your own). A population may be ...
##### How do you solve (x + 4) ( x + 2) = 15?
How do you solve (x + 4) ( x + 2) = 15?...
##### Cane Company manufactures two products called Alpha and Beta that sell for $140 and$100, respectively...
Cane Company manufactures two products called Alpha and Beta that sell for $140 and$100, respectively Each product uses only one type of raw material that costs \$8 per pound. The company has the capacity to annually produce 106,000 units of each product. Its unit costs for each product at this leve...