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Unformatted text preview: proportion oF “very satisfed” people. STA103 Project 3 2. Volatility of a Portfolio of Two Stocks (a) One can achieve volatility of 0.0105 in two ways. One can set α = . 89 or α = . 44 and either gives the value 0.0105. These can be read from a good graph or determined numerically. 0.0 0.2 0.4 0.6 0.8 1.0 0.0100 0.0105 0.0110 0.0115 0.0120 0.0125 0.0130 Graph of Portfolio Volatility α Portfolio Volatility (b) The two choices of α give diFerent expected returns. Since IBM has the higher expected return, the better portfolio is the one that puts more weight in IBM, so this gives α = . 89 and a portfolio return of . 00140 = . 89 × . 001402 + . 11 × . 001365. (c) No, the volatility curve does not go as low as 0.010....
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 Spring '08
 Dinwoodie
 Statistics, Probability, Null hypothesis, Statistical hypothesis testing, Duke Community Standard, I. H. Dinwoodie

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