Assume a world that meets all assumptions of the portfolio theory. In this world we solely trade in securities A and B like depicted in the raph below. Short selling is allowed. XA and XB indicate the proportions of security A and B within a portfolio respectively. P1, P2, P3 and P4- epresent portfolios that can be created by trading (either long and/or short) in securities A and B. P3 is the portfolio with the lowest risk; the isk of P3 is 0%. The risk of security A and B is measured by the standard deviation of the returns in the particular security and equals 20% or both. The correlation coefficient of the returns between A and B is -1. 40% P1 E(R) 30% + P2 20% P3 10% P4 0% 10% 20% 30% 40% o(R) Question: Indicate which statements are correct. Take into account that everything is possible, from all correct to all wrong. B.
Assume a world that meets all assumptions of the portfolio theory. In this world we solely trade in securities A and B like depicted in the raph below. Short selling is allowed. XA and XB indicate the proportions of security A and B within a portfolio respectively. P1, P2, P3 and P4- epresent portfolios that can be created by trading (either long and/or short) in securities A and B. P3 is the portfolio with the lowest risk; the isk of P3 is 0%. The risk of security A and B is measured by the standard deviation of the returns in the particular security and equals 20% or both. The correlation coefficient of the returns between A and B is -1. 40% P1 E(R) 30% + P2 20% P3 10% P4 0% 10% 20% 30% 40% o(R) Question: Indicate which statements are correct. Take into account that everything is possible, from all correct to all wrong. B.
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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Transcribed Image Text:Assume a world that meets all assumptions of the portfolio theory. In this world we solely trade in securities A and B like depicted in the
graph below. Short selling is allowed. xA and XB indicate the proportions of security A and B within a portfolio respectively. P1, P2, P3 and P4
represent portfolios that can be created by trading (either long and/or short) in securhies A and B. P3 is the portfolio with the lowest risk; the
risk of P3 is 0%. The risk of security A and B is measured by the standard deviation of the returns in the particular security and equals 20%
for both. The correlation coefficient of the returns between A and B is -1.
40%
P1
E(R)
A
30%
P2
20%
P3
10%
P4
++
30%
0%
10%
20%
40%
O(R)
Question:
Indicate which statements are correct. Take into account that everything is possible, from all correct to all wrong.
Transcribed Image Text:Note: if you believe that all statements are wrong you can skip this question. You'll get a notification later that you have not filled in this
question but this is no problem.
O I. For P1: XA > 1 and XB < 0
O II. For P2: XA > 1 and XB > 0
O III. For P3: XA = XB
O IV. For P4: XA > 0 and XB < 0
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