Solution_Practice Problems for Midterm

P 2 2 2 57 3 1 57 2 2 2 57

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Unformatted text preview: zero standard deviation. 50 ! 100 4. The proportion of wealth invested in Stock A is ! A = = 0.57 and the 50 ! 100 + 50 ! 75 proportion invested in Stock B is, therefore, ! B = 1 ! ! A = 1 ! 0.5714 = 0.43 . Thus, the expected return on the portfolio is E ( Rp ) = 0.57 ! .12 + (1 " 0.57) ! .09 = 0.1071 = 10.71% and its standard deviation is !p = 2 2 2 (.57) ! (.3) + (1 " .57) ! (.2) 2 + 2 ! .57 ! (1 " .57) ! .8 ! .3 ! .2 =0.2453=24.53% 5. The proportion of wealth invested in Stock A is ! A = 100 ! 100 = 1.6 = 160% 100 ! 100 " 50 ! 75 and the proportion invested in Stock B is, therefore, ! B = 1 ! ! A = 1 ! 1.6 = !0.6 = !60% . Thus, the expect...
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