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    Portfolio of Common Stock of Two Securities

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    Irene Adler is considering investing in the common stock of Holmes and Watson. The following data are available for the two securities.

    ..................................... Holmes .............. Watson
    Expected Return ............... 0.12 .................. 0.16
    Standard Deviation ........... 0.08 .................. 0.20

    If she invests 60% of her funds Holmes and 40% in Watson, and if the correlation of returns between these two securities is 0.45, what is the portfolio's expected return and standard deviation?

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    Solution Summary

    The solution analysis a portfolio of a common stock with two securities. What the portfolio is expected return and standard deviation is determined.

    $2.19

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