* A nces The expected return on Big Time Toys is 12% and its standard deviation is 21.6%. The expected return on Chemical Industries is 9% and its standard deviation is 27.4%. a. Suppose the correlation coefficient for the two stocks' returns is 0.28. What are the expected return and standard deviation of a portfolio with 53% invested in Big Time Toys and the rest in Chemical Industries? (Round your answers to 2 decimal places.) Portfolio's expected return Portfolio's standard deviation b. If the correlation coefficient is 0.78, recalculate the portfolio expected return and standard deviation, assuming the portfolio weights are unchanged. (Round your answers to 2 decimal places.) Portfolio's expected return Portfolio's standard deviation c. Why is there a slight difference between the results, when the correlation coefficient was 0.28 and when it was 0.78? The higher the correlation is between the two variables, the less the potential is for diversification. V

* A nces The expected return on Big Time Toys is 12% and its standard deviation is 21.6%. The expected return on Chemical Industries is 9% and its standard deviation is 27.4%. a. Suppose the correlation coefficient for the two stocks' returns is 0.28. What are the expected return and standard deviation of a portfolio with 53% invested in Big Time Toys and the rest in Chemical Industries? (Round your answers to 2 decimal places.) Portfolio's expected return Portfolio's standard deviation b. If the correlation coefficient is 0.78, recalculate the portfolio expected return and standard deviation, assuming the portfolio weights are unchanged. (Round your answers to 2 decimal places.) Portfolio's expected return Portfolio's standard deviation c. Why is there a slight difference between the results, when the correlation coefficient was 0.28 and when it was 0.78? The higher the correlation is between the two variables, the less the potential is for diversification. V

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P

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