Question
The probability distribution of the return on asset X is Probability 0.1 0.2 0.4 0.2 0.1 Return on X (%) 30 20 15 10 -50
The probability distribution of the return on asset X is
| Probability | 0.1 | 0.2 | 0.4 | 0.2 | 0.1 |
| Return on X (%) | 30 | 20 | 15 | 10 | -50 |
The return on asset Y is perfectly correlated with the return on X so that Ry= 0.06+0.2Rx, where Ry denotes the return on Y and Rx denotes the return on X.
(a) What are the expected return and standard deviation of return on a portfolio with equal weights in the two assets?
(b) What should the weight of asset X be if the aim is to construct a portfolio with zero variance?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
The Value Investor's Handbook
Authors: Andrew P.C.
1st Edition
1098810449, 978-1098810443
