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Consider the following information for stocks X and Y below: Stock Expected Return Standard Deviation X 4.70% 15% Y 18.50% 7% Assume that the return
Consider the following information for stocks X and Y below:
Stock | Expected Return | Standard Deviation |
X | 4.70% | 15% |
Y | 18.50% | 7% |
Assume that the return on the market is 20%, the risk-free rate is 5%, and the correlation between the two stocks = -0.30.
Your client wants you to create a portfolio consisting of Stocks X and Y with a beta equal to 0.45. If your client has $250,000, compute how much (in $) you would invest in each stock, and then compute the expected return (in%) and standard deviation (in %) of the portfolio.
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