Question: The correlations between the returns of three stocks A, B, and C are given in the following table:
The expected rates of return on A, B, and C are 16%, 12%, and 15%, respectively. The corresponding standard deviations of the returns are 25%, 22%, and 25%.
a. What is the standard deviation of a portfolio invested 25% in stock A, 25% in stock B, and 50% in stock C? 20.
b. You plan to invest 50% of your money in the portfolio constructed in part a of this question and 50% in the risk-free asset. The risk-free interest rate is 5%. What is the expected return on this investment? What is the standard deviation of the return on this investment?