Asked by Gurpreet Verka on May 09, 2024
Verified
Assume there is a fixed exchange rate between the Canadian and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 18% and 15%, respectively. The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively. The covariance of returns between the U.S. and Canadian stock markets is 1.5%.
If you invested 50% of your money in the Canadian stock market and 50% in the U.S. stock market, the expected return on your portfolio would be
A) 12.0%.
B) 12.5%.
C) 13.0%.
D) 15.5%.
Expected Return
The anticipated average return on an investment under normal conditions, taking into account both the probability of each outcome and the return of each outcome.
Portfolio
A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs.
Covariance
A measure used in statistics to determine how two variables move together, indicating the degree to which they are correlated.
- Compute and comprehend the risk and return of a portfolio within a global framework.
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SC
Learning Objectives
- Compute and comprehend the risk and return of a portfolio within a global framework.