6. You have the following information on two securities in which you have invested:
EXPECTED STANDARD PERCENT
Security Return Deviation BETA INVESTED(w)
Xerox 15% 4.5% 1.20 35%
Kodak 12% 3.8% 0.98 65%
A) Which stock is riskier in a portfolio context? Which stock is riskier if you are considering them as individual assets (not part of a portfolio)?
B) Compute the expected return on the portfolio.
C) If the securities have a correlation of +0.60, compute the standard deviation of the portfolio.
D) Compute the beta of the portfolio.
The solution examines the analysis of risk and return. The beta of the portfolio is determined.