Question
Stock G has expected return of 8% and standard deviation of 10%, while stock H has expected return of 4 % and standard deviation of
Stock G has expected return of 8% and standard deviation of 10%, while stock H has expected return of 4% and standard deviation of 5%. The correlation coecient between the two risky securities is 0.2. The risk-free rate is 3%.
a. (4 MARKS) what are the weights of stock G and stock H in the optimal risky portfolio?
b. (4 MARKS) what are the expected return and standard deviation of the optimal risky portfolio above?
c. (4 MARKS) What are the expected return and standard deviation of the complete portfolio if Annas coefficient of risk aversion is 4?
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Options Futures And Other Derivatives
Authors: John C. Hull
8th Edition
0132164949, 9780132164948
