$\begin{array}{|l|r|r|rr}
\hline& \text { Expected Return } & \begin{array}{r}
\text { Standard Deviation of } \
\text { Return }
\end{array} &{\text { Correlation }} \
& & & \text { Coefficients } \
& & & \text { X }& \text {Y} \
\hline \text { Canadian Stock X } & 6 \% & 9 \% & 1.00 & \
\hline \text { American Stock Y } & 4 \% & 8 \% & 0.80 & 1.00\
\hline
\end{array}$

A Canadian plans to buy 100 shares of this American stock for US $20 per share. The current spot rate is C$1.2977 = US $1. Suppose that this investor can sell the stock for US $30 a share a year later. The spot rate at the time of the sale is C$1.3029 = US $1.
-With 80% of the funds invested in domestic stock X and 20% in Y, what is the expected return of this portfolio?

Question

$\begin{array}{|l|r|r|rr} 
\hline& \text { Expected Return } & \begin{array}{r}
\text { Standard Deviation of } \
\text { Return }
\end{array} &{\text { Correlation }} \
& & & \text { Coefficients } \
& &  & \text { X }& \text {Y} \
\hline \text { Canadian Stock X } & 6 \% & 9 \% & 1.00 & \
\hline \text { American Stock Y } & 4 \% & 8 \% & 0.80 & 1.00\
 \hline
\end{array}$

A Canadian plans to buy 100 shares of this American stock for US $20 per share. The current spot rate is C$1.2977 = US $1. Suppose that this investor can sell the stock for US $30 a share a year later. The spot rate at the time of the sale is C$1.3029 = US $1.
-With 80% of the funds invested in domestic stock X and 20% in Y, what is the expected return of this portfolio?

Quizplus · Accepted Answer

The expected return of the portfolio is calculated as a weighted average of the expected returns of the individual stocks: $0.8 \times 6\% + 0.2 \times 4\% = 4.8\% + 0.8\% = 5.6\%$.

A Canadian Plans to Buy 100 Shares of This American