A popular theory in investment states that you should invest a certain amount of money in foreign
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(a) Determine the average annual return and level of risk in a portfolio that is 10% foreign.
(b) Determine the percentage that should be invested in foreign stocks to best minimize risk.
(c) Why do you think risk initially decreases as the percent of foreign investments increases?
(d) A portfolio that is 30% foreign and 70% American has a mean rate of return of about 15.8%, with a standard deviation of 14.3%. According to Chebyshev's Inequality, at least 75% of returns will be between what values? According to Chebyshev's Inequality, at least 88.9% of returns will be between what two values? Should an investor be surprised if she has a negative rate of return? Why?
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