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Pepsi’s mean return over the last 5 years is 19% while McDonald’s is 14%. Their respective...

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Finance

  1. Pepsi’s mean return over the last 5 years is 19% whileMcDonald’s is 14%. Their respective standard deviations are 21% and18%. The two stocks correlation coefficient is -.20.

  1. Calculate the portfolio mean return for the minimum varianceportfolio.
  2. Calculate the portfolio risk for the minimum varianceportfolio.
  3. Discuss the benefits of diversification for Pepsi andMcDonald’s.

Answer & Explanation Solved by verified expert
3.8 Ratings (364 Votes)
aThe formula to calculate Mean expectedreturn of minimum variance porfolio is1whereErPMean return of Pepsiwpweight of pepsiErMMean return of McDonaldswMweight of    See Answer
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Transcribed Image Text

Pepsi’s mean return over the last 5 years is 19% whileMcDonald’s is 14%. Their respective standard deviations are 21% and18%. The two stocks correlation coefficient is -.20.Calculate the portfolio mean return for the minimum varianceportfolio.Calculate the portfolio risk for the minimum varianceportfolio.Discuss the benefits of diversification for Pepsi andMcDonald’s.

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