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Calculate the expected return y total risk of the portfolios

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Reference no: EM132517597

James Bonet, is an international investor, which faces the possibility to invest his money in a portfolio of British Petroleum (BP) and/or Banco Santander (BS) shares, with an expected return 26% and 17%, respectively. On the other side, he knows the past risk of the shares, measured by the standard deviation of returns, has been 16% for BP and 5.4% for BS.

Knowing that the correlation of returns between both shares has been 0.1. James wants to calculate the expected return y total risk of the following portfolios, with a given percentage of both shares:

a) Invest 20% in BP and 80% in BS

b) Invest 40% in BP and 60% in BS

c) Invest 60% in BP and 40% in BS

d) Invest 80% in BP and 20% in BS

James Bonet also wants to know which will be the best portfolio of BS and BP shares, if he can lend and borrow at a free interest rate of 14% and the market is at equilibrium.

Reference no: EM132517597

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