I$$d like to ask an expert

$$eBook

Problem

$6$

$-$

$0$

$6$

Given:

E

$($

R

$1$

$)$

$=$

$0$

$.$

$1$

$3$

E

$($

R

$2$

$)$

$=$

$0$

$.$

$1$

$7$

E

$($

$\backslash$

sigma

$1$

$)$

$=$

$0$

$.$

$0$

$4$

E

$($

$\backslash$

sigma

$2$

$)$

$=$

$0$

$.$

$0$

$6$

Calculate the expected returns and expected standard deviations of a two

$-$

stock portfolio having a correlation coefficient of

$0$

$.$

$6$

$0$

$$under the conditions given below. Do not round intermediate calculations. Round your answers to four decimal places.

w

$1$

$=$

$1$

$.$

$0$

$0$

Expected return of a two

$-$

stock portfolio:

$.$

$1$

$3$

Expected standard deviation of a two

$-$

stock portfolio:

$0$

$.$

$0$

$4$

w

$1$

$=$

$0$

$.$

$7$

$0$

Expected return of a two

$-$

stock portfolio:

$0$

$.$

$1$

$4$

$2$

$0$

Expected standard deviation of a two

$-$

stock portfolio:

$.$

$0$

$3$

$7$

$5$

w

$1$

$=$

$0$

$.$

$4$

$0$

Expected return of a two

$-$

stock portfolio:

Expected standard deviation of a two

$-$

stock portfolio:

w

$1$

$=$

$0$

$.$

$3$

$0$

Expected return of a two

$-$

stock portfolio:

Expected standard deviation of a two

$-$

stock portfolio:

w

$1$

$=$

$0$

$.$

$1$

$0$

Expected return of a two

$-$

stock portfolio:

Expected standard deviation of a two

$-$

stock portfolio:

Choose the correct risk

$$

return graph for weights from parts

$($

a

$)$

$$through

$($

e

$)$

$$when ri

$,$

j

$=$

$-$

$0$

$.$

$6$

$0$

;

$0$

$.$

$0$

$0$

;

$0$

$.$

$6$

$0$

$.$

The correct graph is

$-$

Select

$-$

$$

$.$

A

$.$

$$

The risk

$-$

return graph shows expected return E

$($

R

$)$

$$as a function of standard deviation of return, sigma, for three correlation coefficients. Expected return is measured from

$0$

$.$

$1$

$0$

$$to

$0$

$.$

$1$

$9$

$$on the vertical axis. Sigma is measured from zero to

$0$

$.$

$0$

$9$

$$on the horizontal axis. Each of the three graphs is a segmented line that starts at the common point A and passes through its own four points, B through E

$.$

$$The graph corresponding to r subscript

$1$

$,$

$2$

$$end subscript equal to

$0$

$.$

$6$

$0$

$$passes through the following points:

$($

$0$

$.$

$0$

$4$

$0$

$,$

$0$

$.$

$1$

$3$

$0$

$)$

$,$

$($

$0$

$.$

$0$

$5$

$1$

$,$

$0$

$.$

$1$

$4$

$2$

$)$

$,$

$($

$0$

$.$

$0$

$6$

$1$

$,$

$0$

$.$

$1$

$5$

$4$

$)$

$,$

$($

$0$

$.$

$0$

$5$

$9$

$,$

$0$

$.$

$1$

$6$

$0$

$)$

$,$

$($

$0$

$.$

$0$

$5$

$6$

$,$

$0$

$.$

$1$

$6$

$6$

$)$

$.$

The graph corresponding to r subscript

$1$

$,$

$2$

$$end subscript equal to

$0$

$.$

$0$

$0$

$$passes through the following points:

$($

$0$

$.$

$0$

$4$

$0$

$,$

$0$

$.$

$1$

$3$

$0$

$)$

$,$

$($

$0$

$.$

$0$

$4$

$4$

$,$

$0$

$.$

$1$

$3$

$9$

$)$

$,$

$($

$0$

$.$

$0$

$4$

$7$

$,$

$0$

$.$

$1$

$4$

$8$

$)$

$,$

$($

$0$

$.$

$0$

$5$

$1$

$,$

$0$

$.$

$1$

$5$

$7$

$)$

$,$

$($

$0$

$.$

$0$

$5$

$4$

$,$

$0$

$.$

$1$

$6$

$6$

$)$

$.$

The graph corresponding to r subscript

$1$

$,$

$2$

$$end subscript equal to

$-$

$0$

$.$

$6$

$0$

$$passes through the following points:

$($

$0$

$.$

$0$

$4$

$0$

$,$

$0$

$.$

$1$

$3$

$0$

$)$

$,$

$($

$0$

$.$

$0$

$2$

$2$

$,$

$0$

$.$

$1$

$4$

$2$

$)$

$,$

$($

$0$

$.$

$0$

$2$

$9$

$,$

$0$

$.$

$1$

$5$

$4$

$)$

$,$

$($

$0$

$.$

$0$

$3$

$6$

$,$

$0$

$.$

$1$

$5$

$8$

$)$

$,$

$($

$0$

$.$

$0$

$5$

$2$

$,$

$0$

$.$

$1$

$6$

$6$

$)$

$.$

B

$.$

$$

The risk

$-$

return graph shows expected return E

$($

R

$)$

$$as a function of standard deviation of return, sigma, for three correlation coefficients. Expected return is measured from

$0$

$.$

$1$

$0$

$$to

$0$

$.$

$1$

$9$

$$on the vertical axis. Sigma is measured from zero to

$0$

$.$

$0$

$9$

$$on the horizontal axis. Each of the three graphs is a segmented line that starts at the common point A and passes through its own four points, B through E

$.$

$$The graph corresponding to r subscript

$1$

$,$

$2$

$$end subscript equal to

$0$

$.$

$6$

$0$

$$passes through the following points:

$($

$0$

$.$

$0$

$5$

$0$

$,$

$0$

$.$

$1$

$2$

$0$

$)$

$,$

$($

$0$

$.$

$0$

$5$

$1$

$,$

$0$

$.$

$1$

$3$

$2$

$)$

$,$

$($