Question

JAP Corporation provided the following information: Year Stock A Stock B Stock C (50%) Returns (50%) Returns (50%) Returns 2005 50 50 20 2006 45 -10.00% 45 -10.00% 22 10.00% 2007 40 -11.11% 40 -11.11% 24 11.11% 2008 35 -12.50% 35 -12.50% 27 12.50% 2009 30 -14.29% 30 -14.29% 31 14.29% 2010 25 -16.67% 25 -16.67% 37 16.67% 2011 20 -20.00% 20 -20.00% 44 20.00% Average return -14.09% -14.09% 14.09% Standard deviation 3.73% 3.73% 3.73% Compute the following: a. Portfolio return of Stock A and B, and B and C. b. Portfolio risk of Stock A and B, and B and C The amount of invested is equal and the correlation coefficient between stock A and B is +1 and that between Stocks B and C is -1.

Answer 1

Answer:

JAP Corporation provided the following information: Year Stock A Stock B Stock C (50%) Returns (50%) Returns (50%) Returns 2005 50 50 20 2006 45 -10.00% 45 -10.00% 22 10.00% 2007 40 -11.11% 40 -11.11% 24 11.11% 2008 35 -12.50% 35 -12.50% 27 12.50% 2009 30 -14.29% 30 -14.29% 31 14.29% 2010 25 -16.67% 25 -16.67% 37 16.67% 2011 20 -20.00% 20 -20.00% 44 20.00% Average return -14.09% -14.09% 14.09% Standard deviation 3.73% 3.73% 3.73% Compute the following: a. Portfolio return of Stock A and B, and B and C. b. Portfolio risk of Stock A and B, and B and C The amount of invested is equal and the correlation coefficient between stock A and B is +1 and that between Stocks B and C is -1.