USE THE FOLLOWING INFORMATION FOR THE NEXT 2 QUESTIONS You are provided with the following information about two stocks and the market portfolio. * HAW Stock X 30% 1.65 Correlation with market portfolio 0.75 A) 0.20 B) 0.75 Standard deviation Beta coefficient Stock Y 20% 1.40 ? Market Portfolio 15% ? 1. You want to construct a portfolio invested equally in Stock Y and the Market portfolio. If you want the standard deviation of your portfolio to be 6%, what must be the correlation between the returns on Stock Y and the Market portfolio? A) 0.85 B) 1.00 1 C) -0.80 D) 0.80 E) -1.00 Solution: C PYM = [(0.062) - (0.52 *0.22) - (0.52 *0.152)]/[2(0.5) (0.5) (0.20) (0.15)] = -0.80 12. You want to construct a portfolio invested as follows: 40% in Stock X; 25% in Stock Y and the rest in the Market portfolio. What is the systematic (market) risk of your portfolio?

USE THE FOLLOWING INFORMATION FOR THE NEXT 2 QUESTIONS You are provided with the following information about two stocks and the market portfolio. 1. You want to construct a portfolio invested equally in Stock \\( Y \\) and the Market portfolio. If you want the standard deviation of your portfolio to be \6, what must be the correlation between the returns on Stock \\( Y \\) and the Market portfolio? A) 0.20 B) 0.75 C) -0.80 D) 0.80 E) -1.00 Solution: C \\[ \ ho_{Y M}=\\left[\\left(0.06^{2}\ ight)-\\left(0.5^{2} \\cdot 0.2^{2}\ ight)-\\left(0.5^{2} * 0.15^{2}\ ight)\ ight] /[2(0.5)(0.5)(0.20)(0.15)]=-0.80 \\] 12. You want to construct a portfolio invested as follows: \40 in Stock X; \25 in Stock \\( Y \\) and the rest in the Market portfolio. What is the systematic (market) risk of your portfolio? A) 0.85 B) 1.00