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2: SHORT ANSWER Answer the following question using the table below. Year 1 ABC XYZ 0.16 -0.07 2 0.31 0.32 3 -0.02 -0.14 4 5
2: SHORT ANSWER Answer the following question using the table below. Year 1 ABC XYZ 0.16 -0.07 2 0.31 0.32 3 -0.02 -0.14 4 5 0.16 -0.23 -0.27 0.43 out of 34 points 1. Calculate the average return and standard deviation of stock ABC and XYZ. Also, calculate the correlation between the two stocks. What does the correlation tell you about the return movements of the two stocks? (8) 2. Calculate the weight of each stock in the minimum variance portfolio, assume the expected return equals to average return for each stock. (6) 3. Suppose the risk-free rate is 1%. Also, assume the expected return equals to average return for each stock. Calculate 1) the weights for the two stocks in the optimal risky portfolio; 2) the return and risk (standard deviation) of the portfolio. (12) 4. If a client demands a $100,000 complete portfolio with an expected return of 15%. Use the information and your answer above. Find the amount of money invested in stocks ABC and XYZ, and the risk-free asset. (8)
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