(a) (b) Given the following two securities MSC and APP. You consider buying these two securities...
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(a) (b) Given the following two securities MSC and APP. You consider buying these two securities to form a portfolio: Return Return Probability (RMSC) (RAPP) 0.3 -5% 15% 0.4 8% 10% 0.3 12% -8% (i) Compute covariance of the portfolio. (ii) (7 marks) Compute standard deviation of the portfolio if you invest RM180,000 into MSC and RM220,000 into APP. (5 marks) Theoretically, justify how the maximum level the standard deviation of a portfolio can be reduced to. Realistically, explain is it possible to reduce the standard deviation to this level. (6 marks) (a) (b) Given the following two securities MSC and APP. You consider buying these two securities to form a portfolio: Return Return Probability (RMSC) (RAPP) 0.3 -5% 15% 0.4 8% 10% 0.3 12% -8% (i) Compute covariance of the portfolio. (ii) (7 marks) Compute standard deviation of the portfolio if you invest RM180,000 into MSC and RM220,000 into APP. (5 marks) Theoretically, justify how the maximum level the standard deviation of a portfolio can be reduced to. Realistically, explain is it possible to reduce the standard deviation to this level. (6 marks)
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Answer rating: 100% (QA)
a i To compute the covariance of the portfolio we use the formula Covariance w1 w2 CovarianceRMSC RA... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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