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the answer, please Exercise 1 (4 marks) You have a budget of RO 20,000 and you want invest it in an equity portfolio (composed by
the answer, please
Exercise 1 (4 marks) You have a budget of RO 20,000 and you want invest it in an equity portfolio (composed by Shares ABC and XYZ) and a 3 months T-bills (risk free rate). Due to the effects of COVID-19 pandemic spread, you estimate that there is a 60% chance that stock ABC will drop by 10% and 40% chance that it will increase by 5%. As for stock XYZ, there is a 15% chance that stock XYZ will decrease by 15% and a 85% chance that it will increase by 25%. The correlation between shares ABC and XYZ is 0.45. The risk free rate is 5%. Write your answers below 1) What is the expected returns and the risk of each risky share? (2 marks) 2) If you plan to invest OR 7,000 in ABC, OR 9,000 in XYZ and OR 4,000 in T-bills, what is the expected returns and the risk of this portfolio? (2 marks)Step by Step Solution
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