Question
An investor considers forming a complete portfolio based on two stocks, A and B, and a risk-free asset. Stock A has an expected return of
An investor considers forming a complete portfolio based on two stocks, A and B, and a risk-free asset. Stock A has an expected return of 21% and a standard deviation of return of 30%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is .2. The risk-free rate of return is 5%. She plans to invest 40% in the risky portfolio. The proportion of the complete portfolio that should be invested in stock A is approximately____. The answer is 18.6% but I don't know how to get that answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started