6. Assume that there are only two portfolios in the world: portfolio A and portfolio B....
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6. Assume that there are only two portfolios in the world: portfolio A and portfolio B. The expected return of each portfolio is 10% and 20% and the standard deviation of the returns is 5% and 15%, respectively. The correlation between the returns of both portfolios is zero. Now suppose that there is a risk-free asset in the market with a return of 2% and you can combine only one risky portfolio with the risk-free asset. Which portfolio would you choose, A or B? 6. Assume that there are only two portfolios in the world: portfolio A and portfolio B. The expected return of each portfolio is 10% and 20% and the standard deviation of the returns is 5% and 15%, respectively. The correlation between the returns of both portfolios is zero. Now suppose that there is a risk-free asset in the market with a return of 2% and you can combine only one risky portfolio with the risk-free asset. Which portfolio would you choose, A or B?
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