Answered: security A and B is 0.25. The risk free…

security A and B is 0.25. The risk free rate is 3%. The weight of security A in the tangency portfolio of security A and B is closest to 5%. 15% 25%. 35% 45% 55% 65%. 75%. 85%. 95%.

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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Question

The expected return on security A is 9% and the volatility of this return is 50%. The expected return of
security B is 14% and the volatility of this return is 40%. The correlation coefficient between the returns of
security A and B is 0.25. The risk free rate is 3%. The weight of security A in the tangency portfolio of
security A and B is closest to
5%.
x
15%
25%.
35%.
45%.
55%.
65%
75%.
85%.
95%
Hide question 4 feedback
The weights of the tangency portfolio is the standardized solution of
0.25xz,+0.06x0.06
0.06xz, +0.16x2,-0.11
The standardized solution is 14.3% for security a and 85.7% for security B.

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