SampleMidterm.2

SampleMidterm.2 - c. What is the standard deviation of...

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Chapter 6 4. An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 15% and a standard deviation of return of 15%. Stock B has an expected return of 20% and a standard deviation of return of 25%. The correlation coefficient between the returns of A and B is 15%. The risk-free rate of return is 4%. a. What is the proportion of the optimal risky portfolio that should be invested in stock A? b. What is the expected return on the optimal risky portfolio?
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Unformatted text preview: c. What is the standard deviation of return on the optimal risky portfolio? d. The graph below illustrates the portfolio choice set for this problem. Label the points representing stock A and stock B. Illustrate the optimal portfolio choice when the risk free rate is 4% by drawing the appropriate Capital Asset Line (CAL). Portfolio Selection 0.05 0.1 0.15 0.2 0.25 0.1 0.2 0.3 Standard Deviation Expected Return...
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