Assume there are only three risky assets in which to invest, A, B and C. The expected return and standard deviation of return of asset A are 0.08 and 0.04, respectively. Similarly, the expected return and standard deviation of return of asset B are 0.1 and 0.05, respectively. Finally, the expected return and standard deviation of return of asset Care 0.07 and 0.02, respectively. The correlation coefficient between the returns of these assets are as follows: PAB-0.5, PAC-0.2 PBC -0.4 You want to form a portfolio composed of these three securities with an expected return of 10% What are the weights of A, B and C in an efficient portfolio with an expected return of 10%?
Assume there are only three risky assets in which to invest, A, B and C. The expected return and standard deviation of return of asset A are 0.08 and 0.04, respectively. Similarly, the expected return and standard deviation of return of asset B are 0.1 and 0.05, respectively. Finally, the expected return and standard deviation of return of asset Care 0.07 and 0.02, respectively. The correlation coefficient between the returns of these assets are as follows: PAB-0.5, PAC-0.2 PBC -0.4 You want to form a portfolio composed of these three securities with an expected return of 10% What are the weights of A, B and C in an efficient portfolio with an expected return of 10%?
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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Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:Assume there are only three risky assets in which to invest, A, B and C. The expected return and
standard deviation of return of asset A are 0.08 and 0.04, respectively. Similarly, the expected
return and standard deviation of return of asset B are 0.1 and 0.05, respectively. Finally, the
expected return and standard deviation of return of asset C are 0.07 and 0.02, respectively. The
correlation coefficient between the returns of these assets are as follows:
PAB-0.5, PAC-0.2 PBC -0.4
You want to form a portfolio composed of these three securities with an expected return of 10%
What are the weights of A, B and C in an efficient portfolio with an expected return of 10%?
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