The Expected Returns and Standard Deviations for Stocks a and B

question 13

Short Answer

The expected returns and standard deviations for stocks A and B are r_A=14% and r_B=19%, respectively, and $\sigma$ _A=23% and $\sigma$ _B=34%, respectively.The correlation of the returns on the two stocks is $\sigma$ _AB=0.3.What is the expected return, r_P, and standard deviation, $\sigma$ _P, of a portfolio with weights of w_A=0.60 and w_B=0.40 in stocks A and B, respectively?
$\begin{array}{ll}&1' \mathrm{P} & \sigma_{\mathrm{P}} \\a.&16 \% & 22.1 \% \\b.&16 \% & 24.8 \% \\c.&17 \% & 22.1 \% \\d.&17 \% & 24.8 \%\end{array}$

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Definitions:

Lanham Act

The primary federal trademark statute in the United States, providing protection against trademark infringement and unfair competition.

Truth In Lending Act

A national statute aimed at encouraging the knowledgeable utilization of consumer credit through mandating the revelation of its conditions and expenses.

Unsecured Open-End Credit

A line of credit that does not require collateral and can be used repeatedly up to a certain limit.

Annual Percentage Rate

The annual rate charged for borrowing or earned through an investment, expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income from an investment.