An investor has $25,000 in cash to invest and additionally decides to short sell Stock A. The
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An investor has $25,000 in cash to invest and additionally decides to short sell Stock A. The cash and proceeds from the short sale ($15,000) are used to invest in Stock B. Stock A and Stock B have zero correlation. Stock A's expected return is 30% with volatility of 48%; Stock B's expected return is 10% with volatility of 22%.
a. Estimate the portfolio's expected return and variance.
b-Comment on the effect of short selling on portfolio volatility relative to the volatility of the individual stocks. What could explain the findings?
Related Book For
Fundamentals of Financial Accounting
ISBN: 978-0078025914
5th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby
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