Recompute the portfolio variance if you invest in a portfolio O with wH = 90% and wI

Question:

Recompute the portfolio variance if you invest in a portfolio O with wH

= 90% and wI

=

10% in Table 8.4.

(a) Compute the rates of return on the portfolio in each scenario, and then treat the resulting portfolio as one asset. What is portfolio O’s risk and reward?

(b) Compute the same variance with the shortcut Formula 8.10 on page 234.

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