Stock a has an expected return of 8 percent and an


Stock A has an expected return of 8 percent and an 18-percent volatility. Stock B has an expected return of 16 percent and a 30-percent volatility. The correlation coefficient between the returns of stock A and stock B is 0.30. a. What is the expected return of portfolio P1 with 25 percent of funds in stock A and the balance in stock B? b. What is the covariance between the returns of stock A and those of stock B? c. What is the volatility of the portfolio P1 ? d. What are the expected return and volatility of the minimum-risk portfolio? e. Portfolio P2 has an expected return of 14 percent and a 25-percent volatility. Is it an efficient portfolio? Explain. What expected return should portfolio P2 offer to be efficient?

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Financial Management: Stock a has an expected return of 8 percent and an
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