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Consider the following information Stock A 2.20 60 Stock B 1.80 50 Stock C 1.60 40 Beta Standard deviation of return (%) Standard deviation of return on the market is 15% Expected market return is 14% Risk free rate is 6% Correlation coefficient of return between stock A and stock B is 0.60 Correlation coefficient of return between stock A and stock C is 0.40 Correlation coefficient of return between stock B and stock C is 0.20 Required: A) Calculate expected return for stock A, stock B and stock C. B) Calculate the expected return and standard deviation of a portfolio (Portfolio B) which invests one- third in stock A, one-third in stock B, and one-third in stock C. Calculate the expected return and standard deviation of a portfolio (Portfolio C) which invests one- third in the risk free asset, one-third in stock B, and one-third in stock C Compare your answers to (B) and (C) and recommend based on (i) Sharpe ratio and (ii) C) D) Consider the following information Stock A 2.20 60 Stock B 1.80 50 Stock C 1.60 40 Beta Standard deviation of return (%) Standard deviation of return on the market is 15% Expected market return is 14% Risk free rate is 6% Correlation coefficient of return between stock A and stock B is 0.60 Correlation coefficient of return between stock A and stock C is 0.40 Correlation coefficient of return between stock B and stock C is 0.20 Required: A) Calculate expected return for stock A, stock B and stock C. B) Calculate the expected return and standard deviation of a portfolio (Portfolio B) which invests one- third in stock A, one-third in stock B, and one-third in stock C. Calculate the expected return and standard deviation of a portfolio (Portfolio C) which invests one- third in the risk free asset, one-third in stock B, and one-third in stock C Compare your answers to (B) and (C) and recommend based on (i) Sharpe ratio and (ii) C) D)

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