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Problem regarding the portfolio valuation

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Reference no: EM131086398

Question 1:  Portfolio valuation

Consider shares in two companies, JAY and KAY, as follows:

Expected Return E(R)

Standard Deviation s

Correlation Coefficient r

Share JAY

12%

18%

- 0.3

Share KAY

24%

32%

a) Calculate the covariance between Share JAY and KAY returns.

b) What is the expected return and standard deviation of returns on a portfolio comprising 35% in Share JAY and 65% in Share KAY?

c) If you wanted to create a portfolio consisting only of these two shares, how much would you need to invest (weights) in each share so that your portfolio return would be equal to 15.6%? Note: do not round.

d) Using the weights calculated in part c), calculate the variance and standard deviation of your portfolio.

Reference no: EM131086398

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