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    Expected Return and Standard Deviation of Ebenezer Scrooge's Portfolio

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    Ebenezer Scrooge has invested 60% of his money in share A and the remainder in share B. He assesses their prospects as follows:
    A B
    Expected return (%) 15 20
    Standard deviation (%) 20 22
    Correlation between returns .5
    a. What are the expected return and standard deviation of returns on his portfolio?
    b. How would your answer change if the correlation coefficient were 0 or -.5?
    c. Is Mr. Scrooge's portfolio better or worse than one invested entirely in share A, or is it not possible to say?

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    Solution Preview

    Ebenezer Scrooge has invested 60% of his money in share A and the remainder in share B. He assesses their prospects as follows:
    A B
    Expected return (%) 15 20
    Standard deviation (%) 20 22 ...

    Solution Summary

    This solution shows which investment option is better for Ebenezer Scrooge with formula and calculations.

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