A portfolio consists of Stock Aand Stock B. Data for the 2 stocks is shown below.
Stock A: expected return 13%
Stock A: standard deviation 35%
Stock B: expected return 15%
Stock B: standard deviation 50%
Correlation between A and B 0.30
Stock A beta 0.85
Stock B beta 1.10
% portfolio in Stock A 40%
% portfolio in Stock B 60%
a. Calculate the expected return of the portfolio.
b. Calculate the standard deviation of the portfolio.
c. Calculate the beta of the portfolio
d. Does the portfolio have more risk, less risk, or the same risk as the market? Explain.
e. Will your portfolio likely outperform, underperform, or perform the same as the market in a period when stocks are rapidly falling in value? Why?