Question
Suppose that you work as a senior equity research associate in Royal Bank of Canadas main downtown Toronto branch. For simplicity, assume that there are
Suppose that you work as a senior equity research associate in Royal Bank of Canadas main downtown Toronto branch. For simplicity, assume that there are only two assets in the market, stocks A and B. Suppose your colleague John constructs his market portfolio by having 80% in stock A and 20% in stock B. Your colleague Jessie, however, forms her market portfolio by putting 40% in stock A and 60% in stock B. The expected mean return and the variance-covariance matrix of returns for these two stocks are:
= [ 0.09 0.06], = [ 0.60 0.12 0.12 0.18 ]
Do you think John and Jessie would require the same rate of return on each stock? Explain.
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