Consider a market that consists of 2 independent stocks with the following data for the associated...
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Consider a market that consists of 2 independent stocks with the following data for the associated returns: M₁ = 0.1, M₂ = 0.4, Roy wishes to construct a portfolio V in this market with high expected return and low risk. For this, he decides to minimize of - μv. 01 0.2, = er 2023 0.25. (a) (4 Points) Find a portfolio that achieves this goal. (b) (3 Points) Find the mean and the variance of (the return of) the portfolio you found in part (a). (c) (3 Points) Suppose Roy has $1000 to invest. Explain what he should do with his money and what is the expected amount that he will obtain after one year (note that by convention the return is calculated for one year). Consider a market that consists of 2 independent stocks with the following data for the associated returns: M₁ = 0.1, M₂ = 0.4, Roy wishes to construct a portfolio V in this market with high expected return and low risk. For this, he decides to minimize of - μv. 01 0.2, = er 2023 0.25. (a) (4 Points) Find a portfolio that achieves this goal. (b) (3 Points) Find the mean and the variance of (the return of) the portfolio you found in part (a). (c) (3 Points) Suppose Roy has $1000 to invest. Explain what he should do with his money and what is the expected amount that he will obtain after one year (note that by convention the return is calculated for one year).
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a To find a portfolio that achieves the goal of high expected return and low risk we can use the con... View the full answer
Related Book For
Investments
ISBN: 978-0071338875
8th Canadian Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus, Stylianos Perrakis, Peter
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