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Expected Returns and Standard Deviation of Gamma Industries

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1. An investor plans to invest 75% of her funds in the common stock of Gamma Industries and 25% in Epsilon Company.

The expected return on Gamma is 12% and the expected return on Epsilon is 16%.
The standard deviation of returns for Gamma is 8% and for Epsilon is 12%. The correlation coefficient between the returns for Gamma and Epsilon is +0.8

Determine the expected return on the investors portfolio.
Determine the standard deviation of returns for this investor's portfolio.

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Solution Summary

This solution calculates the expected return on the investor's portfolio and the standard deviation of returns for the investors portfolio. All formulas and workings are shown in an Excel file.

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