there are only two stocks in the entire market, Stock A and Stock B. Stock A has an expected return of 8% and a standard deviation of 15%. Stock B has an expected return of 14% and a standard deviation of 20%. Their market capitalizations are both $3,000,000. The correlation between stock A and stock B is 0.3. The risk free rate is 4.5%. If you were only able to hold either the market portfolio or Stock A in isolation, and held no other assets (including T-Bills), is it clear which one you would choose? Why?
there are only two stocks in the entire market, Stock A and Stock B. Stock A has an expected return of 8% and a standard deviation of 15%. Stock B has an expected return of 14% and a standard deviation of 20%. Their market capitalizations are both $3,000,000. The correlation between stock A and stock B is 0.3. The risk free rate is 4.5%. If you were only able to hold either the market portfolio or Stock A in isolation, and held no other assets (including T-Bills), is it clear which one you would choose? Why?
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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Suppose there are only two stocks in the entire market, Stock A and Stock B. Stock A has an expected return of 8% and a standard deviation of 15%. Stock B has an expected return of 14% and a standard deviation of 20%. Their market capitalizations are both $3,000,000. The correlation between stock A and stock B is 0.3. The risk free rate is 4.5%. If you were only able to hold either the market portfolio or Stock A in isolation, and held no other assets (including T-Bills), is it clear which one you would choose? Why?
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