You would like to invest in a portfolio of the following two securities: Security A whose expected return is 25% per year and standard deviation is 26% per year and Security B whose expected return is 10% per year and standard deviation is 15% per year. a. What is the expected return on a portfolio that invested 40% in Security A and 60% in Security B? b. If the correlation between the return on Security A and Security B is negative 0.50, what would be the standard deviation for the portfolio invested 40% in Security A and 60% in Security B? c. Given your answer in part b would you reduce your risk by investing in this portfolio rather than investing all your money in security B? Answer Yes or No and explain.
You would like to invest in a portfolio of the following two securities: Security A whose expected return is 25% per year and standard deviation is 26% per year and Security B whose expected return is 10% per year and standard deviation is 15% per year. a. What is the expected return on a portfolio that invested 40% in Security A and 60% in Security B? b. If the correlation between the return on Security A and Security B is negative 0.50, what would be the standard deviation for the portfolio invested 40% in Security A and 60% in Security B? c. Given your answer in part b would you reduce your risk by investing in this portfolio rather than investing all your money in security B? Answer Yes or No and explain.
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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See sir please before doing follow these points (very important), if followed ill definitely like and if can't follow please skip:-
A) dont do handwritten
B) explain every concept and step
C) skip if you are unsure
D) pls don't copy
Ill definitely like the answer...
Transcribed Image Text:You would like to invest in a portfolio of the following two securities: Security A whose
expected return is 25% per year and standard deviation is 26% per year and Security B whose
expected return is 10% per year and standard deviation is 15% per year.
a. What is the expected return on a portfolio that invested 40% in Security A and 60% in Security
B?
b. If the correlation between the return on Security A and Security B is negative 0.50, what would
be the standard deviation for the portfolio invested 40% in Security A and 60% in Security B?
c. Given your answer in part b would you reduce your risk by investing in this portfolio rather than
investing all your money in security B? Answer Yes or No and explain.
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