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Mary Guilott recently graduated from college and is evaluating an investment in two companys stock.

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Mary Guilott recently graduated from college and is evaluating an investment in two companys stock. She has collected the following information about the common stock of Firm A and B.;Expected Returns Standard Deviation;Firm A's Common Stock;0.15;0.14;Firm B's Common Stock;0.08;0.07;Correlation Coefficient;0.30;a. If Mary invests half her money in each of the two common shares, what is the expected rate of return and standard deviation in portfolio return?;b. Answer quest a, where the correlation between the two com stock investments is equal zero.;c. Answer question a, where the correlation between the two common stock investments is equal to +1.;d. Answer question a, where the correlation between the two common stock investments is equal to -1.;e. Using your responses to questions a-d, describe the relationship between the correlation and the risk and return of the portfolio.;a. If Mary decides to invests 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is;0.30, then the expected rate of return in the portfolio is ______% (Round to two decimal places);The standard deviation in the portfolis is _____%.;b. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation between the two stocks is zero;then the expected rate of return in the portfolio is ____%.;The standard deviation in the portfolio is _____% (Round to two decimal places);c. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation coefficient between the two stocks is +1, then the;expected rate of return in the portfolio is ____% (Round to two decimal places);The standard deviation in the portfolio is _____%;d. If Mary decides to invest 50% of her money in Firm A's common stock and 50% in Firm B's common stock and the correlation coefficient between the two stocks is -1, then the;expected rate of return in the portfolio is ____%. (Round to two decimal places);The standard deviation in the porfolio is ____%.;e. Using your responses to questions a-d, which of the following statements best describes the relationship between the correlation and the risk and return of the portfolio? (Select;the best choice);A. The correlation has a negative effect on the expected return of a portfolio, and the closer the correlation coefficient is to negative on, -1, the lower the risk;B. The correlation coefficient has no effect on the expected return of a portfolio, but the closer the correlation coefficient is to one, the lower the risk.;C. The correlation coefficient has no effect on the expected return of a portfolio, but the closer the correlation coefficient is to negative one, -1, the higher the risk.;D. The correlation coefficient has no effect on the expected return of a portfolio, but the closer the correlation coefficient is to negative one, -1, the lower the risk.;View Full Attachment;Additional Requirements;Level of Detail: Only answer needed

 

Paper#29915 | Written in 18-Jul-2015

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