Suppose you are wondering whether to Invest in the shares of Amazon (Security 1) or Southwest (Security 2). You decide that Security 1 offers an expected return of 10.0% and Security 2 offers an expected return of 15.0%. After looking back at the past variability of the two stocks, you also decide that the standard devation of returns is 26.6% for Security 1 and 27.9% for Security 2 Calculate the expected portfollo return and standard deviation for different values of xg and x2 assuming the correlation coefficlent P12 = 0. Repeat the problem for P12 = -0.25. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) op when p12 =0 x1 x2 Exp (rp) op when p12 = 0.25 1.0 0.0 0.9 0.1 0.8 0.2 0.7 0.3 0.6 0.4 0.5 0.5 0.4 0.6 0.3 0.7 0.2 0.8 0.1 0.9 0.0 1.0
Suppose you are wondering whether to Invest in the shares of Amazon (Security 1) or Southwest (Security 2). You decide that Security 1 offers an expected return of 10.0% and Security 2 offers an expected return of 15.0%. After looking back at the past variability of the two stocks, you also decide that the standard devation of returns is 26.6% for Security 1 and 27.9% for Security 2 Calculate the expected portfollo return and standard deviation for different values of xg and x2 assuming the correlation coefficlent P12 = 0. Repeat the problem for P12 = -0.25. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) op when p12 =0 x1 x2 Exp (rp) op when p12 = 0.25 1.0 0.0 0.9 0.1 0.8 0.2 0.7 0.3 0.6 0.4 0.5 0.5 0.4 0.6 0.3 0.7 0.2 0.8 0.1 0.9 0.0 1.0
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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Transcribed Image Text:Suppose you are wondering whether to Invest In the shares of Amazon (Security 1) or Southwest (Security 2). You decide that Security 1
offers an expected return of 10.0% and Security 2 offers an expected retum of 15.0%. After looking back at the past varlability of the
two stocks, you also decide that the standard deviation of returns Is 26.6% for Security 1 and 27.9% for Security 2
Calculate the expected portfolio return and standard devlation for different values of x and x2 assuming the correlation coefficient
P12 = 0. Repeat the problem for p12 = -0.25. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2
decimal places.)
op
when p12 = 0
op
when p12 = 0.25
x1
x2
Exp (rp)
1.0
0.0
0.9
0.1
%
0.8
0.2
%
%
%
%
0.7
0.3
%
0.6
0.4
%
0.5
0.5
%
0.4
0.6
%
0.3
0.7
%
%
0.2
0.8
%
0.1
0.9
%
0.0
1.0
%
%
Folololale
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