The expected returns and standard deviation of returns for two securities are as follows: The correlation between the returns is .
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2. The expected returns and standard deviation of returns for two securities are as follows:

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The correlation between the returns is .25.


(a) Calculate the expected return and standard deviation for the following portfolios:

(i) All in Security 1

(ii) .75 in Security 1 and the rest in Security 2

(iii) .5 in Security 1 and the rest in Security 2

(iv) .25 in Security 1 and the rest in Security 2

(v) All in Security 2


(b) Draw the mean-standard deviation diagram.


(c) Which portfolios could be chosen from this group by some investor who likes high mean and dislikes variance?

fin2.PNG

Top Answer

(a) Standard Deviation Expected Return i) 20.00% 15.00% ii) 20.00% 20.00% iii)... View the full answer

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