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29 February, 14:31

Stock A has an expected return of 14% and a standard deviation of 35%. Stock B has an expected return of 20% and a standard deviation of 55%. The correlation coefficient between Stocks A and B is 0.2. What is the expected return of a portfolio invested 25% in Stock A and 75% in Stock B

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  1. 29 February, 15:01
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    The expected return from a portfolio consisting of 25% of stock A and 75% of stock B is 18.5%

    Explanation:

    Return on portfolio=Return of security A * Weight of security A+Return of security B * Weight of security B

    Return of security A=14%

    Return of security B=20%

    Weight of security A=25%

    Weight of security B=75%

    Return on portfolio = 14 % ∗ 25 / 100 + 20% ∗ 75 / 100

    Return on portfolio = 18.5 %
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