in mutual fund B, the annual return has an expectation standard deviation of $0.03x. Suppose that the returns are independent of each other and that I have $1000 to What are the expectation and variance of my annual r all my money in fund A? What are the expectation and variance of my annual r all my money in fund B? What are the expectation and variance of my total ann invest half of my money in fund A and half in fund B? Suppose I invest $x in fund A and the rest of my mone value of x minimizes the variance of my total annual re Explain why your answers illustrate the importance of investment strategy.
in mutual fund B, the annual return has an expectation standard deviation of $0.03x. Suppose that the returns are independent of each other and that I have $1000 to What are the expectation and variance of my annual r all my money in fund A? What are the expectation and variance of my annual r all my money in fund B? What are the expectation and variance of my total ann invest half of my money in fund A and half in fund B? Suppose I invest $x in fund A and the rest of my mone value of x minimizes the variance of my total annual re Explain why your answers illustrate the importance of investment strategy.
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Transcribed Image Text:2.6.11If $x is invested in mutual fund A, the annual return has an
expectation of $0.1x and a standard deviation of $0.02x. If $x is invested
in mutual fund B, the annual return has an expectation of $0.1x and a
standard deviation of $0.03x. Suppose that the returns on the two funds
are independent of each other and that I have $1000 to invest.
(a) What are the expectation and variance of my annual return if I invest
all my money in fund A?
(b) What are the expectation and variance of my annual return if I invest
all my money in fund B?
(c) What are the expectation and variance of my total annual return if I
invest half of my money in fund A and half in fund B?
(d) Suppose I invest $x in fund A and the rest of my money in fund B. What
value of x minimizes the variance of my total annual return?
Explain why your answers illustrate the importance of diversity in an
investment strategy.
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