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Consider two risky stocks X and Y. Stock Y has an expected return of 16% and a standard deviation of 13%. Stock X has an
Consider two risky stocks X and Y. Stock Y has an expected return of 16% and a standard deviation of 13%. Stock X has an expected return of 20% and a standard deviation of 25%. The correlation between the returns of X and Y is +0.3.
i) What is the expected return and standard deviation of a portfolio with 40% in Y and 60% in X?
ii) Is there any diversification benefit resulting from forming the portfolio?
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