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5. Shares A and B offer the following scenarios: Probability Share A yield Share B yield Market Conditions Growth Normal 0.5 0.3 25% 10% 10%
5. Shares A and B offer the following scenarios: Probability Share A yield Share B yield Market Conditions Growth Normal 0.5 0.3 25% 10% 10% -5% Recession 0.2 -25% 35% (a) Calculate the mean return for each share. (b) Calculate the variance and standard deviation for each share. (c) Calculate their covariance and correlation coefficient. (d) Find the minimum variance portfolio of A and B (e) If your risk aversion is p = 0.5, which security do you prefer? Find your optimal portfolio of A and B. 5. Shares A and B offer the following scenarios: Probability Share A yield Share B yield Market Conditions Growth Normal 0.5 0.3 25% 10% 10% -5% Recession 0.2 -25% 35% (a) Calculate the mean return for each share. (b) Calculate the variance and standard deviation for each share. (c) Calculate their covariance and correlation coefficient. (d) Find the minimum variance portfolio of A and B (e) If your risk aversion is p = 0.5, which security do you prefer? Find your optimal portfolio of A and B
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