Question
1. The correlation coefficients between pairs of stocks are as follows: Corr(A,B) = .85; Corr(A,C) = .60; Corr(A,D) = .45. Each stock has an expected
1. The correlation coefficients between pairs of stocks are as follows: Corr(A,B) = .85; Corr(A,C) = .60; Corr(A,D) = .45. Each stock has an expected return of 8% and a standard deviation of 20%.
a) What would be the composition of the minimum variance portfolio?
b) Suppose that in addition to investing in one or more stock you can invest in T-bills as well. Would be your optimal risky portfolio and what would be the slope of CAL if the T-bill rate is 5%?
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Financial Management Core Concepts
Authors: Raymond M Brooks
2nd edition
132671034, 978-0132671033
