Question
Assume that the 60% of a portfolio is invested at share 1 and the rest at share 2. Also, share 1 is expected to yield
Assume that the 60% of a portfolio is invested at share 1 and the rest at share 2.
Also, share 1 is expected to yield 13% return, while share 20% return. Calculate the expected return of the portfolio. Assume that the standard deviation of the return of the share 1 is 17.6% and of 2nd share 25%. Calculate the standard deviation of the portfolio without differentiation ( 12 = +1), with full differentiation (12 = -1) and in case the correlation coefficient of both shares is 12 = +0.2. In which case you notice bigger compensation in the differentiation of the portfolio which consists of the 2 shares? Assume that the rate without risk is 5 % and the prime risk of the market is 7.4%. Beta coefficient of share 1 is 0.87 and for share 2 1.19. Find according to CAPM , the expected return of both shares. With which beta coefficient the return of the share is bigger 16,65% than the return of the stock without risk.
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