Calculate the expected return and standard deviation, Financial Management

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Benjamin Tang currently has holdings in the following three companies:

                                                                            E(R)                      σ                    β

Vivian Tam & Yuanyuan Wang Technologies (X)       14%                   16%                 2.0

Vivien Wang & Danny Dong Ltd. (Y)                        12%                   14%                 1.6

Omar Salahuddin & Philip Viegas Inc. (Z)                10%                   11%                 1.2

Coefficient of Correlation                                     ρxy = -0.4         ρxz = 0.6          ρyz = -0.7

a. What would be the expected return, standard deviation, and β for the following portfolios:

  Portfolio A                $20,000 in X and $30,000 in Y?

  Portfolio B                $35,000 in Y and $15,000 in Z?

Which one is the better portfolio and why?

b. Assuming normal distribution, determine the range within which approximately 95% of the portfolio A's returns will fall?


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