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 __________.

Question

Quizplus · Accepted Answer

The expected return on the portfolio is the weighted average of the expected returns of the individual investments. With 50% in each market, the expected return is (0.5 * 18%) + (0.5 * 13%) = 15.5%.

Assume There Is a Fixed Exchange Rate Between the Canadian