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Suppose you invest 30% of your money in Security A and the rest in Security B Security A Security B Expected return 15% 10% Standard

Suppose you invest 30% of your money in Security A and the rest in Security B

Security A

Security B

Expected return

15%

10%

Standard Deviation

0.25

0.17

Beta

1.3

1.1

Correlation coefficient

between A and B

0.5

a) What is the expected return of the portfolio?

b) What is the portfolio beta?

c) What is the portfolio variance? Compare it with A and B variances. Is the portfolio variance larger or smaller than either A or B variances and why?

d) What percentage of your portfolio variance comes from the interaction component of total risk?

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