Reference no: EM133094538
Question - You have a portfolio that is 25% in Stock A and 75% in Stock B. The expected returns are 10% and 15%, respectively, with standard deviations of 20% and 25%, betas of 1 and 1.5, respectively, and a correlation of 40%.
1. What are the expected return, beta, and standard deviation of the portfolio?
2. Suppose that you add a third stock, Stock C, with an expected return of 10%, a beta of 1.0, and a standard deviation of 30%. The correlations with A and B are 40% and 60%, respectively. The new portfolio weights are 25% A, 50% B, and 25% C. What are the expected return, beta, and standard deviation of the portfolio?
3. Using Excel, plot the efficient frontier for an investment opportunity set of only stocks A, B, and C.
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