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 __________.
18% (0.5) + 13%(0.5) = 15.5%.
View more: Chapter 25 - International Diversification
