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Lily plans to construct a portfolio consisting of only two equity investments in TTT and SSS...

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Finance

  1. Lily plans to construct a portfolio consisting of only twoequity investments in TTT and SSS ordinary shares. From herresearch, she finds out that these two investments have acorrelation coefficient of -0.389

She plans to invest 80% in share SSSand the remaining in share TTT. The following are additionalinformation collected in respect of these two investments:

Share TTT

Share SSS

Standard deviation:

13.39%

8.16%

Mean return:

9.10%

5.96%

Based on the portfolio investment information given above, youare required to compute the

  1. portfolio returns                                                                              

  1. portfolio risk                                                                                    

Answer & Explanation Solved by verified expert
4.3 Ratings (714 Votes)
i Weight of share of SSS in portfolio W1 80 Weight ofshare of TTT in portfolio W2 1 W1 1 80 20Mean return of SSS R1 910 and Mean return of TTT    See Answer
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Transcribed Image Text

Lily plans to construct a portfolio consisting of only twoequity investments in TTT and SSS ordinary shares. From herresearch, she finds out that these two investments have acorrelation coefficient of -0.389She plans to invest 80% in share SSSand the remaining in share TTT. The following are additionalinformation collected in respect of these two investments:Share TTTShare SSSStandard deviation:13.39%8.16%Mean return:9.10%5.96%Based on the portfolio investment information given above, youare required to compute theportfolio returns                                                                              portfolio risk                                                                                    

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