Question
Expected Return Standard Deviation Stock A 10% 13.50% Stock B 4% 9% Stock C 21% 29% Risk Free 3% The correlation between Stock A and
Expected Return Standard Deviation Stock A 10% 13.50% Stock B 4% 9% Stock C 21% 29% Risk Free 3% The correlation between Stock A and Stock B is 0.33. The correlation between stock B and stock C is -0.87, and the correlation between Stock A and Stock C is 0.75.
(1) What is the expected return and risk of a risky portfolio invested 40% in Stock A and 60% in Stock B? (2) What is the expected return and risk of a risky portfolio invested 30% in Stock B and 70% in Stock C? (3) For an Investor with a risk Aversion score of 6, which risky portfolio option
(1) or (2) above, would they prefer? (Hint: you must first solve for optimal y for each portfolio option and use the complete portfolio formulas). (4) What is the expected return and standard deviation for a risky portfolio invested 18% in stock A, 32% in stock B, and 50% in stock C?
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Financial Accounting The Impact On Decision Makers
Authors: Gary A Porter, Curtis L Norton
7th Edition
1439080526, 9781439080528
