Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%. Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r, between Bob's and Becky's portfolios is zero. If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?

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23 January, 13:48

Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%. Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r, between Bob's and Becky's portfolios is zero. If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?

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Answers (1)

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Keaton · Answer 1

Combined Beta = 1

Combined return = 10%

Explanation:

given data

stock portfolio = $50,000

beta = 1.2

expected return = 10.8%

beta = 0.8

expected return = 9.2%

standard deviation = 25%

to find out

combination

solution

we get here first Combined Beta that is express as

Combined Beta = 1.2 * 50% + 0.8 * 50%

Combined Beta = 1

and

Combined return will be here

Combined return = 10.8 * 50% + 9.2 * 50%

Combined return = 10%