Question 8 Consider the following four risky assets: Expected Standard Retums Deviation 15.00% Asset Correlations Firm 1 Firm 2 Fim 3 Firm 4 0.25 0.01 0.05 014 0.2 7.00% Firm 1 0.31 Firm 1 Firm 2 Firm 3 Firm 4 Firm 2 Firm 3 Firm 4 0.31 0.25 0.05 9.00% 22.00% 10.00% 28.00% -0.01 1 014 02 16.00% Risk-free Asset 6.00% 31.00% 0 00%
Question 8 Consider the following four risky assets: Expected Standard Retums Deviation 15.00% Asset Correlations Firm 1 Firm 2 Fim 3 Firm 4 0.25 0.01 0.05 014 0.2 7.00% Firm 1 0.31 Firm 1 Firm 2 Firm 3 Firm 4 Firm 2 Firm 3 Firm 4 0.31 0.25 0.05 9.00% 22.00% 10.00% 28.00% -0.01 1 014 02 16.00% Risk-free Asset 6.00% 31.00% 0 00%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 8
Consider the following four risky assets:
Expected Standard
Retuns Deviation
7.00%
9.00%
10.00%
16.00%
Asset
Correlations Firm 1 Firm 2 Fim 3 Fim 4
15.00%
22.00%
0.05
0.14
0.2
Firm 1
Firm 1
Firm 2
Fim 3
0.31
0.25
-0.01
Fim 2
Firm 3
28.00%
31.00%
0.31
0.25
0.05
-0.01
Firm 4
Risk-free Assel 6.00%
Firm 4
0.14
02
0.00%
An investor put half her money in Firm 1 and half in Firm 2. resulting in a portfolio
with a standard deviation of 15.11%. She wants a portfolio with the same
expected retum but the lowest risk possible. What weight should she assign to
Firm 1 to achieve a portfolio with the same expected return and the lowest
standard deviation possible? Note the following:
175362
0.06611
13.38079
1.47007
1 68944
10.22128
-0.04089
-0.77884
48.24%
8.10%
21 48%
O 68.32%
O6163%
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