Question
Mr. Papadopoulos looks in the table above which contains data on the two stocks in which he thinks to invest. Applying a regression analysis, he
Mr. Papadopoulos looks in the table above which contains data on the two stocks in which he thinks to invest. Applying a regression analysis, he estimated the beta of the portfolio to be 1.6 and that the stocks are not correlated between them. A) What are the return and the total risk (standard deviation) of Mr. Papadopoulos portfolio if he decided to invest in 2005, 55000 in stock and 45000 in stock CD? B) What would change in your answer in (a) if you know that the 2 stocks have negative correlation between them. Explain theoretically. C) If Mr. Papadopoulos had 100000 available for investment, how much money () should he invest in stock CD in order to have return on the portfolio equal to 13% in 2005? D) The trader of Mr. Papadopoulos offered him an alternative investment with the same beta but less total risk (standard deviation). What should Mr. Papadopoulos do? Explain theoretically.
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