Question

Consider again the investment problem described in the previous problem. Now, assume that the returns of the four stocks are no longer independent. Specifically, the correlations between all pairs of stock returns are given in the file S04_49.xlsx.
a. Find the mean and standard deviation of the total amount that this investor earns in one year from these four investments. Compare these results to those you found in the previous problem. Explain the differences in your answers.
b. Suppose that this investor now decides to place $15,000 each in stocks B and D and $5000 each in stocks A and C. How do the mean and standard deviation of the total amount that this investor earns in one year change from the allocation used in part a? Provide an intuitive explanation for these changes.



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  • CreatedApril 01, 2015
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