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Question 1: Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 15% and a standard deviation
Question 1:
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 15% and a standard deviation of 27%. B has an expected rate of return of 7% and a standard deviation of 13%. What are the weights of A and B in the minimum variance portfolio Whats the return for this minimum variance portfolio? (5 Marks)
Question 2: Consider the following probability distribution for stocks A and B:
- The expected rates of return of stocks A and B are _____ and _____, respectively. (2 Marks)
- The standard deviations of stocks A and B are _____ and _____, respectively. (2 Marks)
- What is the coefficient of correlation between A and B ? (2 Marks)
- If you invest 35% of your money in A and 65% in B, what would be your portfolio's expected rate of return and standard deviation? (4 Marks)
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