Question
A portfolio is consisting of two stocks has the following parameters: A B Standard Deviation 25% 5% Proportion of Portfolio 20% 80% Variance of Portfolio
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A portfolio is consisting of two stocks has the following parameters:
| A | B | |
| Standard Deviation | 25% | 5% |
| Proportion of Portfolio | 20% | 80% |
| Variance of Portfolio comprising of A and B | 50% | |
Calculate the correlation coefficient of asset A and B. [7 MARKS]
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Define the concept of risk aversion. [3 MARKS]
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If a portfolio has a positive weight for each asset, can the expected return on the portfolio be greater than the return on the asset in the portfolio that has the highest return? Can the expected return on the portfolio be less than the return on the asset in the portfolio with the lowest return? Explain. [5 MARKS]
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Valuation, Measuring And Managing The Value Of Companies
Authors: Tim Koller, Marc Goedhart, David Wessels
7th Edition
1119611865, 9781119611868
