The expected return on MSFT next year is 12% with a standard deviation of 20%.The expected return on AAPL next year is 24% with a standard deviation of 30%.The correlation between the two stocks is .6.If James makes equal investments in MSFT and AAPL,what is the expected return on his portfolio.
A)21.45%
B)25.00%
C)4.60%
D)15.00%

Question

Quizplus · Accepted Answer

The expected return on a portfolio is the weighted average of the expected returns on the individual assets in the portfolio. In this case, James is making equal investments in MSFT and AAPL, so the expected return on his portfolio is the average of the expected returns on MSFT and AAPL. The expected return on MSFT is 12% and the expected return on AAPL is 24%, so the expected return on James' portfolio is (12% + 24%) / 2 = 18%.

The Expected Return on MSFT Next Year Is 12% with a Standard