There are two assets in the market A and B.A has an expected return of 8%...
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There are two assets in the market A and B.A has an expected return of 8% and a standard devi- ation of 10%. B has an expected return of 10% and a variance of 0.01. The correlation between A and B is 0.25. You cannot short. 1. What is the standard deviation of B? (Opt) 2. What is the minimum standard deviation of a portfolio consisting of A and B ? Describe that portfolio for K dollars to invest. What is the expected return of this portfolio? (0.5pt) 3. What is the minimum standard deviation for a portfolio with expected return of 10% ? (0.5pt) Hint: If there is only one portfolio that can achieve the target return of 10%, then it has automat- ically the largest standard deviation. There are two assets in the market A and B.A has an expected return of 8% and a standard devi- ation of 10%. B has an expected return of 10% and a variance of 0.01. The correlation between A and B is 0.25. You cannot short. 1. What is the standard deviation of B? (Opt) 2. What is the minimum standard deviation of a portfolio consisting of A and B ? Describe that portfolio for K dollars to invest. What is the expected return of this portfolio? (0.5pt) 3. What is the minimum standard deviation for a portfolio with expected return of 10% ? (0.5pt) Hint: If there is only one portfolio that can achieve the target return of 10%, then it has automat- ically the largest standard deviation.
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Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
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