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Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft Correlation with Wal-Mart Duke Energy
Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft Correlation with Wal-Mart Duke Energy 14% 6% 1.0 -1.0 0.0 Microsoft 44% 24% -1.0 1.0 0.7 Wal-Mart 23% 14% 0.0 0.7 1.0
Stock | Expected Return | Standard Deviation | Correlation with Duke Energy | Correlation with Microsoft | Correlation with Wal-mart |
---|---|---|---|---|---|
Duke Energy | 14% | 6% | 1.0 | -1.0 | 0.0 |
Microsoft | 44% | 24% | -1.0 | 1.0 | 0.7 |
Wal-mart | 23% | 12% | 0.0 | 0.7 | 1.0 |
Consider a portfolio consisting of only Duke Energy and Microsoft.
The percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment would be closest to:
A) 15%.
B) 23%.
C) 80%.
D) 10%.
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