Consider the following information in Figure 1 below for a portfolio including security A and security...
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Consider the following information in Figure 1 below for a portfolio including security A and security B: Figure 1 State of the economy Probability of state of economy Boom Growth Normal Recession 0.2 0.3 0.4 0.1 Return on A (%) 10 -5 5 0 Return on B (%) 15 0 10 20 If you want to include one more security C into the above portfolio (e.g., a new portfolio including securities A, B, and C), what is the new portfolio variance if you invest 40% of C and 60% of the old portfolio including A and B? Assume the standard deviation of C is 10%, and correlation coefficient between the old portfolio and C is 0.8. NOTE: The weights for A and B are 50% each. Consider the following information in Figure 1 below for a portfolio including security A and security B: Figure 1 State of the economy Probability of state of economy Boom Growth Normal Recession 0.2 0.3 0.4 0.1 Return on A (%) 10 -5 5 0 Return on B (%) 15 0 10 20 If you want to include one more security C into the above portfolio (e.g., a new portfolio including securities A, B, and C), what is the new portfolio variance if you invest 40% of C and 60% of the old portfolio including A and B? Assume the standard deviation of C is 10%, and correlation coefficient between the old portfolio and C is 0.8. NOTE: The weights for A and B are 50% each.
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Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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