SampleMidterm.3 - b For part(a what is the expected return...

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5. An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 15% while the standard deviation on stock B is 25%. The expected return on stock A is 15% while on stock B it is 20%. a. Assume the correlation coefficient between the return on A and B is 15%. What is the proportion of the minimum variance portfolio of risky assets that would be invested in stock B?
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Unformatted text preview: b. For part (a), what is the expected return and the standard deviation of the return on the minimum variance portfolio? c. The graph below illustrates the portfolio choice set for this problem. Illustrate the minimum variance portfolio by identifying the tangency point corresponding to the minimum variance portfolio. 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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