Finance School of Management An Example: A Portfolio of BM and FM Suppose you invest $6000 in Bristol-Myers at an expected return of 15%, and $4000 in Ford Motor at an expected return of 21% The standard deviation of the return on bms stock is 18.6% while the standard deviation of the return on fm is 28% The correlation between the returns is 0.4 Fn=.60×.15+40×21=174 p=60×1862+40×282+2×6×4×4×186×28=0493 b=V.0493=2249 uesTc21 Finance School of Management ❖ Suppose you invest $6000 in Bristol-Myers at an expected return of 15%, and $4000 in Ford Motor at an expected return of 21%. ❖ The standard deviation of the return on BM’s stock is 18.6%, while the standard deviation of the return on FM is 28%. ❖ The correlation between the returns is 0.4. rp = .60.15+.40.21=17.4% An Example: A Portfolio of BM and FM .60 .186 .40 .28 2 .6 .4 .4 .186 .28 .0493 2 2 2 2 2  p =  +  +      =  p = .0493 = 22.4%