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B. (6 marks) You have $360,000 to invest in the stock market. Suppose you invested one-fifth of your wealth in stock Q and the rest
B. (6 marks) You have $360,000 to invest in the stock market. Suppose you invested one-fifth of your wealth in stock Q and the rest in stock L. These stocks have the following characteristics: Stock Q has an expected return of 18% and a standard deviation of 12%. Stock L has an expected return of 8% and a standard deviation of 5%. Determine the expected return and standard deviation on a portfolio of stocks Q and L, when the two stocks are uncorrelated and when they are positively perfectly correlated. Interpret and compare your answers in these two cases
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