# Question: Consider again the investment problem described in the previous problem

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.

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.

**View Solution:**## Answer to relevant Questions

A supermarket chain operates five stores of varying sizes in Bloomington, Indiana. Profits (represented as a percentage of sales volume) earned by these five stores are 2.75%, 3%, 3.5%, 4.25%, and 5%, respectively. The means ...Suppose that a marketing research firm sends questionnaires to two different companies. Based on historical evidence, the marketing research firm believes that each company, independently of the other, will return the ...The file S04_62.xlsx contains the joint probability distribution of recent weekly trends of two particular stock prices, P1 and P2.a. Are P1 and P2 independent random variables? Explain why or why not.b. If P1 and P2 are not ...Suppose X and Y are independent random variables. The possible values of X are -1, 0, and 1; the possible values of Y are 10, 20, and 30. You are given that P(X = -1 and Y = 10) = 0.05, P(X = 0 and Y = 30) = 0.20, P(Y = 10) ...The typical standard deviation of the annual return on a stock is 20% and the typical mean return is about 12%. The typical correlation between the annual returns of two stocks is about 0.25. Mutual funds often put an equal ...Post your question