An investor wishes to contruct a portfolio consisting of security 1 and security 2. the expected return on the two securities are E(R1) = 0.08 And E(R2) = 0.12 and the standard deviation 1 = 0.04 and Standard deviation 2 = 0.06. the correlation coefficient between thier returns is P1,2 = -0.5. Investor is free to choose the investment proportions W1 And W2 only to requirment that w1+w2=1 and both w1 and w2 are positive.There is no limit to the number of portfolios that meet thses requirements, since there is no limit to the number of proportions that sum to 1. Therefore a representative selection of values is considered w1: 0, 0.2, 0.4, 0.6, 0.8, and 1
An investor wishes to contruct a portfolio consisting of security 1 and security 2. the expected return on the two securities are E(R1) = 0.08 And E(R2) = 0.12 and the standard deviation 1 = 0.04 and Standard deviation 2 = 0.06. the correlation coefficient between thier returns is P1,2 = -0.5. Investor is free to choose the investment proportions W1 And W2 only to requirment that w1+w2=1 and both w1 and w2 are positive.There is no limit to the number of portfolios that meet thses requirements, since there is no limit to the number of proportions that sum to 1. Therefore a representative selection of values is considered w1: 0, 0.2, 0.4, 0.6, 0.8, and 1
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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An investor wishes to contruct a portfolio consisting of security 1 and security 2. the expected return on the two securities are E(R1) = 0.08 And E(R2) = 0.12 and the standard deviation 1 = 0.04 and Standard deviation 2 = 0.06. the correlation coefficient between thier returns is P1,2 = -0.5. Investor is free to choose the investment proportions W1 And W2 only to requirment that w1+w2=1 and both w1 and w2 are positive.There is no limit to the number of portfolios that meet thses requirements, since there is no limit to the number of proportions that sum to 1. Therefore a representative selection of values is considered w1: 0, 0.2, 0.4, 0.6, 0.8, and 1
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