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Suppose you create a portfolio that is 70% invested in stock A and 30% invested in stock B. The expected returns and risk of the
Suppose you create a portfolio that is 70% invested in stock A and 30% invested in stock B. The expected returns and risk of the two stocks are the same as those in the previous problem.
a. Calculate the expected return and volatility of this portfolio.
b. Calculate the relevant risk of each asset in this portfolio (the risk the investor cares about). You are given that the correlation between the returns of i) this portfolio and stock A, Corr(RA, RP) is 85.47%, and ii) this portfolio and stock B, Corr(RB, RP) is 57.17%.
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