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) Stock X has an expected return of 8% and the standard deviation of the expected return is 9%. Stock Z has an expected return
- ) Stock X has an expected return of 8% and the standard deviation of the expected return is 9%. Stock Z has an expected return of 10% and the standard deviation of the expected return is 7%. The correlation between the returns of the two stocks is +0.5. These are the only two stocks in a hypothetical world.
- What is the expected return and the standard deviation of a portfolio consisting of 100% Stock X? Will any rational investor hold this portfolio (in this hypothetical two stock world)? Explain why or why not.
- What is the expected return and the standard deviation of a portfolio consisting of 100% Stock Z? Will any rational investor hold this portfolio (in this hypothetical two stock world)? Explain why or why not.
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