You must allocate your wealth between two securities. Security 1 offers an expected return of 10% and
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Question:
You must allocate your wealth between two securities. Security 1 offers an expected return of 10% and has a standard deviation of 30%. Security 2 offers an expected return of 15% and has a standard deviation of 50%. The correlation between the returns on these two securities is 0.25.
a. Calculate the expected return and standard deviation for each of the following portfolios, and plot them on a graph:
% Security 1 | % Security 2 | E(R) | Standard Deviation |
100 | 0 | | |
80 | 20 | | |
60 | 40 | | |
40 | 60 | | |
20 | 80 | | |
0 | 100 | | |
| | | |
b. Based on your calculations in part (a), which portfolios are efficient and which are inefficient?
Related Book For
Elementary Statistics
ISBN: 978-0538733502
11th edition
Authors: Robert R. Johnson, Patricia J. Kuby
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