Suppose that you want to create a portfolio that consists of a corporate bond fu

Question

Suppose that you want to create a portfolio that consists of a corporate bond fund, X, and a common stock fund, Y. For a $1,000 investment, the expected return for X is $68 and the expected return for Y is $103. The variance for X is 1,375 and the variance for Y is 11,075. The covariance of X and Y is 4,691. Complete parts (a) through (d) a. Compute the portfolio expected return and portfolio risk if you put $300 in the corporate bond fund and $700 in the common stock fund. The portfolio expected return is $ 92.5 Type an integer or a decimal.) The portfolio risk is $ 86.72 (Round to two decimal places as needed.) b. Compute the portfolio expected return and portfolio risk if you put S500 in each fund. The portfolio expected return is $ Type an integer or a decimal.)

Explanation / Answer

b) Expected return in this case

= 500 * 68/1000 + 500 * 103/1000

= 85.5

Hence,

The portfolio expected return is $ 85.5

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