Benjamin Tang currently has holdings in the following three companies:
E(R) σ β
Vivian Tam & Yuanyuan Wang Technologies (X) 14% 16% 2.0
Vivien Wang & Danny Dong Ltd. (Y) 12% 14% 1.6
Omar Salahuddin & Philip Viegas Inc. (Z) 10% 11% 1.2
Coefficient of Correlation ρxy = -0.4 ρxz = 0.6 ρyz = -0.7
a. What would be the expected return, standard deviation, and β for the following portfolios:
Portfolio A $20,000 in X and $30,000 in Y?
Portfolio B $35,000 in Y and $15,000 in Z?
Which one is the better portfolio and why?
b. Assuming normal distribution, determine the range within which approximately 95% of the portfolio A's returns will fall?