Suppose an investor uses two stocks A and B to build a risky portfolio. The following information is given: E(r_A)=10%,E(r_B)=12%,0_A=15%,o_B=20%, P_AB=0.4,r_f=2%. Denote the optimal risky portfolio investor can achieve with the highest Sharpe ratio by portfolio O. Calculate the weights of A and B (w_A and w_B) in the optimal risky portfolio O. Calculate the expected return and standard deviation of return for portfolio O. Calculate the Sharpe ratio of portfolio O.
Suppose an investor uses two stocks A and B to build a risky portfolio. The following information is given: E(r_A)=10%,E(r_B)=12%,0_A=15%,o_B=20%, P_AB=0.4,r_f=2%. Denote the optimal risky portfolio investor can achieve with the highest Sharpe ratio by portfolio O. Calculate the weights of A and B (w_A and w_B) in the optimal risky portfolio O. Calculate the expected return and standard deviation of return for portfolio O. Calculate the Sharpe ratio of portfolio O.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 7MC: Write out the equation for the Capital Market Line (CML), and draw it on the graph. Interpret the...
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![Suppose an investor uses two stocks A and B
to build a risky portfolio. The following
information is given:
E(r_A)=10%,E(r_B)=12%,0_A=15%,o_B=20%,
p_AB=0.4,r_f=2%. Denote the optimal risky
portfolio investor can achieve with the highest
Sharpe ratio by portfolio O.
Calculate the weights of A and B (w_A and
w_B) in the optimal risky portfolio O.
Calculate the expected return and standard
deviation of return for portfolio O.
Calculate the Sharpe ratio of portfolio O.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdabbb999-af02-45e9-aaab-b473baaedeae%2Fbc6745eb-ceaf-48cf-8199-812f41aa7d8e%2Fgilupd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose an investor uses two stocks A and B
to build a risky portfolio. The following
information is given:
E(r_A)=10%,E(r_B)=12%,0_A=15%,o_B=20%,
p_AB=0.4,r_f=2%. Denote the optimal risky
portfolio investor can achieve with the highest
Sharpe ratio by portfolio O.
Calculate the weights of A and B (w_A and
w_B) in the optimal risky portfolio O.
Calculate the expected return and standard
deviation of return for portfolio O.
Calculate the Sharpe ratio of portfolio O.
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