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You are planning to buy two stocks: F and G. The expected rate of return...

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Finance

You are planning to buy two stocks: F and G. The expected rate of return on F is 15% with a standard deviation of 40% per year. The expected rate of return on G is 20% with a standard deviation of 60% per year.

  1. Calculate the expected rate of return and the standard deviation of a portfolio composed of 30% F and 70% G when the correlation between the returns on F and G is 0.5.

  2. Calculate the expected rate of return and the standard deviation of a portfolio composed of 30% F and 70% G when the correlation between the returns on F and G is -0.5.

  3. How does the correlation between the returns on F and G affect the standard deviation of the portfolio?

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