Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Finance Theory And Practice

Authors: Eddie McLaney

7th Edition

0273702629, 978-0273702627

More Books

Students also viewed these Finance questions