Your client has $101,000 invested in stock A. She would like to build a two-stock portfolio by investing another $101,000 in either stock B or C. She wants a portfolio with an expected return of at least 14.0% and as low a risk as possible, but the standard deviation must be no more than 40%. What do you advise her to do, and what will be the portfolio expected return and standard deviation?
Expected Return Standard Deviation Correlation with A
A 16% 46% 1.00
B 12% 36% 0.17
C 12% 36% 0.26
The expected return of the portfolio with stock B is ___%.
The expected return of the portfolio with stock C is ___%
The standard deviation of the portfolio with stock B is ____%
The standard deviation of the portfolio with stock C is ____%
You would advise your client to choose ____ because it will produce the portfolio with lower standard deviation.