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Thanks in advance, 4) Given two stocks A and B, with E(RA) and E(RB) as expected returns, and of as risks, and PAB as correlation
Thanks in advance,
4) Given two stocks A and B, with E(RA) and E(RB) as expected returns, and of as risks, and PAB as correlation coefficient between the returns of the two stocks. a) Prove that when PAB = +1, in a (o, E(R)) figure, all portfolios composed of A and B (with a weight between 0 and 100% in each stock) are located on the line linking A and B. b) Prove that when PAB = 0, in a (o, E(R)) figure, all portfolios composed of A and B (with a weight between 0 and 100% in each stock) are located on a parabolic curve linking A and B on the left of the line AB. c) Prove that when PAB = -1, in a (o, E(R)) figure, all portfolios composed of A and B (with a weight between 0 and 100% in each stock) are located on one of the two lines which link A or B to a point on the ordinate axis P. Determine the coordinates of PStep by Step Solution
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