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Mr. Free proposes to invest in two shares, X and Y. He expects a return of 15% from X and 9% from Y. The standard
Mr. Free proposes to invest in two shares, X and Y. He expects a return of 15% from X and 9% from Y. The standard deviation of returns is 9% for X and 6% for Y. The correlation coefficient between the returns is 0.2. Compute the expected return and standard deviation of the portfolio if he invest 80% of money into X and 20% into Y. How would your answer change if the correlation coefficient changes to 0.5? Is Mr. Free's portfolio better or worse than one invested entirely in share X, or is it not possible to say
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