An investor can design a risky portfolio based on two stocks, S and B. Stock S has an expected return of 18% and a standard deviation of returm of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5 %. The correlation coefficient between the returns of S and B is 0.50. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is (E(r)-r,)o-(E(r,)-r,)P0 (E(r,) -,)০; + (F(;,) -r,)০;-[EC,) -r, + E(G,) - 7,\p.an0, Wa %D 7% 0% 20% O 5%
An investor can design a risky portfolio based on two stocks, S and B. Stock S has an expected return of 18% and a standard deviation of returm of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5 %. The correlation coefficient between the returns of S and B is 0.50. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is (E(r)-r,)o-(E(r,)-r,)P0 (E(r,) -,)০; + (F(;,) -r,)০;-[EC,) -r, + E(G,) - 7,\p.an0, Wa %D 7% 0% 20% O 5%
Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018
18th Edition
ISBN:9780079039897
Author:Carter
Publisher:Carter
Chapter4: Equations Of Linear Functions
Section4.5: Correlation And Causation
Problem 2AGP
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![An investor can design a risky portfolio based on two stocks, S and B. Stock S has an expected
retun of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14%
and a standard deviation of return of 5 %. The correlation coefficient between the returms of S and B
is 0.50. The risk-free rate of retun is 10%. The standard deviation of return on the optimal risky
portfolio is
(E(r,)-r,)o-(E(r,)-r,)P0
(E(r,)-r)o +(E(r,)-r,)o-[Er,)-r,+E(r)-r,\Pao.
WB
7%
O 0%
20%
5%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcc47ea21-5bbf-4f45-b0e1-850a1d85988e%2Fa248bbbc-739b-4f41-a98c-e09b79d79447%2Fttf24o_processed.jpeg&w=3840&q=75)
Transcribed Image Text:An investor can design a risky portfolio based on two stocks, S and B. Stock S has an expected
retun of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14%
and a standard deviation of return of 5 %. The correlation coefficient between the returms of S and B
is 0.50. The risk-free rate of retun is 10%. The standard deviation of return on the optimal risky
portfolio is
(E(r,)-r,)o-(E(r,)-r,)P0
(E(r,)-r)o +(E(r,)-r,)o-[Er,)-r,+E(r)-r,\Pao.
WB
7%
O 0%
20%
5%
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