Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 31 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 35 percent. The correlation between the two stocks is 0.1. What is the weight of stock D in the minimum variance portfolio? (
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
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.
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 31 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 35 percent. The correlation between the two stocks is 0.1. What is the weight of stock D in the minimum variance portfolio? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
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