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Consider investing money into two stocks Suppose they have expected returns next year of 10% and 20% respectively Assume further that they have standard deviations of 15% and 25% with a correlation

Consider investing money into two stocks. Suppose they have expected returns next year of 10% and 20% respectively. Assume further that they have standard deviations of 15% and 25% with a correlation of 50%.

a. What is the expected return on the equal weighted portfolio?

b. How do you get a portfolio with 18% return and what is the risk of this portfolio?

c. How do you get a portfolio with hundred percent return and what is the risk of this portfolio?

d. Suppose the two stocks have realized returns of 30% and -10% next year. What is the realized return of the equal weighted portfolio and what will be the value of your wealth if you started with R1000?

 

May 15 2020 View more View Less

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