Question
Question 2 Part I- Diversification & trading strategies: (2+3 points) a)Suppose there are only 2 stocks x & y in the market and their returns
Question 2 Part I- Diversification & trading strategies: (2+3 points)
a)Suppose there are only 2 stocks x & y in the market and their returns are always related to one another by x=2y+0.05. Can an investor get any benefit from diversification in this market?
b)Can you design a long-short trading strategy in this market that will give you risk free returns? Elucidate.
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Financial Management Theory and Practice
Authors: Eugene F. Brigham, Michael C. Ehrhardt
16th edition
1337902608, 978-1337902601
