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What is the expected return on Andre’s stock portfolio? 9.70% 13.10% 14.55% 7.28% Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (rho = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 36%, the portfolio’s standard deviation ( σp ) most likely is 36%.

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Answer:

a. 9.70%

Explanation:

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Expected Rate of Return = Sum of (Return *Percentage of Portfolio)

Expected Rate of Return = [6.00% *0.20] + [14.00%*0.30] + [11.00%*0.35] + [3.00%*0.15]

Expected Rate of Return = 1.20% + 4.20% + 3.85% + 0.45%

Expected Rate of Return = 9.70%

If weighted average of the risk of the individual securities included in the partially diversified portfolio of four stocks is 36%, then the portfolios standard deviation most likely is > 36%.

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