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1 August, 21:20

Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 45%. Stock B has an expected return of 18% and a standard deviation of 65%. The correlation coefficient between Stocks A and B is 0.2. What is the expected return of a portfolio invested 40% in Stock A and 60% in Stock B

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  1. 2 August, 00:15
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    Portfolio return = 0.156 or 15.6%

    Explanation:

    The expected return of a portfolio is the weighted average of the individual stocks returns' that form up the portfolio. For a two stock portfolio, the expected return is calculated as follows,

    Portfolio return = wA * rA + wB * rB

    Where,

    w is the weight of each stock r is the expected return of each stock

    Portfolio return = 0.4 * 0.12 + 0.6 * 0.18

    Portfolio return = 0.156 or 15.6%
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