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please solve Q4 in 60 minutes I will give you thumb up Question 4 (20 points) Consider an investor with $100,000. The table below presents
please solve Q4 in 60 minutes I will give you thumb up
Question 4 (20 points) Consider an investor with $100,000. The table below presents data of two uncorrelated stocks (the stocks have correlation of zero) traded in the capital market: a. What is the expected return of a portfolio which holds equal proportions of stocks A and B? Answer: Expected return of the portfolio: b. What is the standard deviation of the portfolio? Answer: Standard deviation of the portfolio: c. Consider a new stock, C, that is uncorrelated with A and B, with the following expected return and standard deviation: Is holding only stock C is more attractive compared to holding an equally weighted portfolio comprised only from stocks A and B (the one you addressed in item a)? (Circle the correct answer and provide a detailed explanation) d. Can the investor improve their existing portfolio (the equally weighted portfolio comprised only from stocks A and B ) by adding stock C ? (Circle the correct answer and provide a detailed explanation): e. Consider the 3 stocks (A, B and C). Is investing all your wealth in stock A an efficient portfolio? (Circle the correct answer and provide a detailed explanation)Step by Step Solution
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