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Unformatted text preview: Proportion of stock 1 Stock 1 Stock 2 Covariance(r1,r2) Correlation(r1,r2) Proportion of stock 1 Proportion of stock 2 0.25 0.75 #MACRO? 16.50% #MACRO? 42.38% #MACRO? 45% 1.462378 #MACRO? Standard deviation of return 12% 35% 18% 50% 0.08350 0.47714 #MACRO? 0.0000 #MACRO? 1.0000 #MACRO? Expected portfolio return Standard deviation of portfolio return 18.00% #MACRO? 50.00% #MACRO? SOLUTION 2 TO THE PROBLEM Target portfolio standard deviation Proportion of stock 1 45% 0.15806 #MACRO? Standard deviation of return 12% 35% 18% 50% Mean return 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 D Mean return 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 B Stock 1 Stock 2 Covariance(r1,r2) Correlation(r1,r2) Proportion of stock 1 Proportion of stock 2 Expected portfolio return Standard deviation of portfolio return 0.08350 0.47714 #MACRO? 0.1581 #MACRO? 0.8419 #MACRO? 17.05% #MACRO? 45.00% #MACRO? This problem was solved in Mathematica. It's a pain in the ass! There are two solutions, as shown below: E F A 2 3 4 5 6 7 8 9 10 11 12 13 Stock 1 Sto...
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This document was uploaded on 03/29/2014.

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