# What is the expected return of Andre's stock portfolio?

Consider the following case: Andre is an amatuer investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: |Stock|Percentage of Portfolio|Expected Return|Standard Deviation

Artemis Inc. 20% 6.00% 38.00%
Babish & Co. 30% 14.00% 42.00%
Cornell Industries 35% 11.00% 45.00%
Danforth Motors 15% 3.00% 47.00%

What is the expected return of Andre’s stock portfolio?

a.) 14.55%
b.) 7.28%
c.) 13.10%
d.) 9.70%

Suppose each stock in the preceding portfolio has a correlation coefficient of 0.4 (p=0.4) with each of the other stocks. The market’s average standard deviation is around 20% and the weighted average of the risk of the individual securities in the partially diversified portfolio of four stocks is 43%. If 40 additional, randomly selected stocks with a correlation coefficient of 0.3 with the other stocks in the portfolio were added to the portfolio, what effect would this have on the portfolio’s standard deviation?