Question

Mr. Alok is interested to invest Rs 1 lacs in the securities market. He selected two securities A and B for this purpose

The risk return profile of these securities are as follows- Security

Risk

Expected return

A

10%

12 %

B

18 %

20 %

 

Coefficient of correlation between A and B is 0.15

If he decides to invest 50 % of his fund in A and rest 50% in B. What if, he decides to invest 75 % of his fund in A and rest 25% in B, will the risk and return associated to the portfolio will change? You are required to calculate the portfolio return and risk to be calculated by Mr Alok for his investment.

Answer 1

The risk and the return that is associated with portfolio will increase.

(20-18)+(12-10) =4

4*0.15 = 0.6