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Unformatted text preview: What is the portfolio beta? 4. Suppose the expected returns and standard deviations of stocks A and B are E(R A ) = 0.15, E(R B ) = 0.25, σ A = 0.40 and σ B = 0.65 respectively. a) Calculate the expected return and standard deviation of a portfolio composed of 40% A and 60% B when the correlation between the returns on A and B is 0.5. b) Calculate the standard deviation of the portfolio when the correlation is -0.5. c) How does the correlation between the returns on A and B affect the standard deviation of the portfolio? 5. Suppose the risk free rate is 6.2% and the market portfolio has an expected return of 14.8%. The market portfolio has a variance of 0.0498. Stock Z has a correlation coefficient with the market of 0.45 and a variance of 0.1783. According to the capital asset pricing model, what is the expected return on stock Z?...
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This note was uploaded on 10/24/2008 for the course FIN 396002 taught by Professor Na during the Spring '08 term at Auckland University of Technology.
- Spring '08
- Corporate Finance