# Calculating the expected return and standard deviation

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The U.S. market has an expected return of 12% and a standard deviation of 22%. An index mutual fund that matches the Morgan Stanley Europe, Australia, and Far East Index (EAFE) has an expected return of 14% and a standard deviation of 30%. The U.S. market and the EAFE fund have a correlation coefficient of 0.5%. Kramer was considering investing in a portfolio that is 58% invested in the U.S. and 42% invested in the EAFE Fund. Calculate the expected return and standard deviation of this portfolio.

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Solution describes the steps to calculate the expected return and standard deviation in the given case.

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Proportion of investment in US Market=p1=58%=0.58

Proportion of investment in EAFE=p2=42%=0.42

Expected return on US Market=r1=12%

Standard deviation ...

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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India

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