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Suppose you are going to invest $ 1 0 0 0 in some stocks and hold them for one year. Suppose Safe Corp. stock currently
Suppose you are going to invest $ in some stocks and hold
them for one year. Suppose Safe Corp. stock currently costs $
Its price a year from now is a random variable X with mean $
and standard deviation of Risky Business stock also currently
costs $ But its price a year from now is a random variable Y
with mean $ and standard deviation of Suppose the correla
tion coefficient of X and Y is
a How much should you invest in each stock if you want to max
imize the expected value of what your stocks are worth one year
from now?
b How much should you invest in each stock if you want to mini
mize the variance of what your stocks are worth one year from now?
NOTE: You are allowed to buy part of a stock. So for example,
you could invest $ in Safe Corp. and $ in Risky
Business.It may be useful to use the formula:
varXY varX varYcovXY
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