Question 1:
a) Is it possible to increase return and decrease risk of a portfolio at the same time?
b) Why do investors buy common stocks instead of investing all their money in bonds and t bills.
Question 2:
|
Common Stock
|
Expected Returns
|
Standard Deviation
|
|
Scott Corp
|
12%
|
6%
|
|
Bill Corp
|
20%
|
15%
|
Use the above table to answer:
A) If the investor allocates 30% of his money to Scott Corp. and the remaining 70% to Bill Corp and the correlation of returns of the 2 stocks is 0.5, what is the expected returns and standard deviation of the portfolio?
B) Explain what happens to the expected returns and standard deviation when you reallocate your portfolio and invest 50% in each stock.