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Expected Return and Volatility Question

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I need some guidance for the following scenario:
You manage a portfolio that consists of 70 percent in S & P 500 index stocks and 30 percent in a Crude Oil ETF. Over the past 10 years the S & P 500 has had an average monthly return of 1.2 percent and a monthly return volatility of 2.2percent. Over the same period, crude oil has seen an average monthly return of 1.8 percent and a monthly volatility of 2.4 percent. The correlation between the S & P 500 index and the Crude Oil ETF's returns have been 0.2.

What's the monthly expected return and volatility of your portfolio?

If the S & P 500 index is a good proxy for the market index, then what's the beta and risk premium of your portfolio? (T-bill's monthly yield is 0.5%)

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Solution Summary

This solution is comprised of a step-by-step guide of how to determine expected return and volatility of a portfolio.

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Weight of S&P stock in portfolio =70%
Weight of Crude Oil ETF in the portfolio =30%
S&P average monthly return =1.2%
S&P monthly return volatility =2.2%
Average ...

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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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