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1. The universe of available securities includes two risky stock funds, A and B, and T-bills. The data are as follows: Expected Return Standard Deviation
1. The universe of available securities includes two risky stock funds, A and B, and T-bills. The data are as follows:
Expected Return Standard Deviation
A 10% 15%
B 15% 25%
T-bills 4% 0
The correlation coefficient between A and B =0.4.
- What is the covariance between funds A and B?
Covariance =0.015
- Find the optimal risky portfolio, P, and its expected return and standard deviation
- Find the slope of the CAL supported by T-bills and portfolio P.
How much will an investor with A = 4 invest in funds A and B and in T-bills?
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