Portfolio Risk
Example
Suppose you invest $55 in Bristol-Myers and $45
in McDonald’s. The expected dollar return on
your BM is .10 x 55 = 5.50 and on McDonald’s it
is .20 x 45 = 9.90. The expected dollar return on
your portfolio is 5.50 + 9300 = 14.50. The
portfolio rate of return is 14.50/100 = .145 or
14.5%. Assume a correlation coefficient of 1.