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Expected Return Standard Deviation Stock A 15% 5% Stock B 21% 8% a. Suppose you are building a two-asset portfolio with stocks A and B.
Expected Return | Standard Deviation | |
Stock A | 15% | 5% |
Stock B | 21% | 8% |
a. Suppose you are building a two-asset portfolio with stocks A and B.
Explain, with the aid of a diagram, the conditions under which the portfolio with A and B dominates a risk-free asset.
b. Explain, with the aid of an equation, the conditions under which covariances of stock
returns are the major determinants of the risk of a portfolio.
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