An investor put half her money in Firm 1 and half in Firm 2, resulting in a portfolio with a standard deviation of 15.11%. She wants a portfolio with the same expected return but the lowest risk possible. What weight should she assign to Firm 1 to achieve a portfolio with the same expected return and the lowest standard deviation possible? Note the following:
An investor put half her money in Firm 1 and half in Firm 2, resulting in a portfolio with a standard deviation of 15.11%. She wants a portfolio with the same expected return but the lowest risk possible. What weight should she assign to Firm 1 to achieve a portfolio with the same expected return and the lowest standard deviation possible? Note the following:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Expected Standard
Returns Deviation
7.00%
15.00%
9.00%
22.00%
10.00%
28.00%
16.00%
31.00%
Risk-free Asset 6.00% 0.00%
Asset
Firm 1
Firm 2
Firm 3
Firm 4
g=
An investor put half her money in Firm 1 and half in Firm 2, resulting in a portfolio with a standard
deviation of 15.11%. She wants a portfolio with the same expected return but the lowest risk
possible. What weight should she assign to Firm 1 to achieve a portfolio with the same expected
return and the lowest standard deviation possible? Note the following:
8.10%
49 249
1.75362
0.06611
-0.04089
-0.77884
Correlations Firm 1 Firm 2 Firm 3 Firm 4
Firm 1
0.05
1
0.31
0.31 0.25
1 -0.01
0.25 -0.01 1
Firm 2
0.14
Firm 3
0.2
Firm 4
0.05 0.14
0.2
1
h =
-13.38079
1.47007
1.68944
10.22128
Transcribed Image Text:Consider the following four risky assets:
Expected Standard
Returns Deviation
7.00%
15.00%
9.00%
22.00%
10.00% 28.00%
16.00%
31.00%
Risk-free Asset 6.00% 0.00%
Asset
Firm 1
Firm 2
Firm 3
Firm 4
g=
An investor put half her money in Firm 1 and half in Firm 2, resulting in a portfolio with a standard
deviation of 15.11%. She wants a portfolio with the same expected return but the lowest risk
possible. What weight should she assign to Firm 1 to achieve a portfolio with the same expected
return and the lowest standard deviation possible? Note the following:
O 8.10%
1.75362
0.06611
-0.04089
-0.77884
O 48.24%
Ⓒ 61.63%
Ⓒ 21.48%
O 68.32%
Correlations Firm 1 Firm 2 Firm 3 Firm 4
Firm 1
1
0.31
0.25
0.05
Firm 2
0.31
1
-0.01
0.14
Firm 3
0.25 -0.01
1
0.2
Firm 4
0.05 0.14
0.2
1
h =
-13.38079
1.47007
1.68944
10.22128
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