An investment portfolio consists of two stocks: 90% in Conservative Casualty and 10% in Limitless Inc....

 

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An investment portfolio consists of two stocks: 90% in Conservative Casualty and 10% in Limitless Inc. The returns (in %) on the two stocks are assumed to follow the bivariate normal distribution, with marginal distributions N(8,6) and N(15,24), respectively. Historical data suggest that the correlation between the returns on these two stocks is p= -0.25. (a) Determine the covariance between the returns on these two stocks. [3 marks] (b) Determine the probability that the return on the portfolio is greater than 10%. [5 marks] (c) A quantitative analyst suggests a portfolio revision, by allocating p of the fund in Conservative Casualty and 1-p of the fund in Limitless Inc. Determine the portfolio proportion p that minimizes the variance of the return on the revised portfolio. [7 marks] (d) Determine the probability that the minimum-variance portfolio determined in part (c) yields a higher return than the original portfolio. [5 marks] An investment portfolio consists of two stocks: 90% in Conservative Casualty and 10% in Limitless Inc. The returns (in %) on the two stocks are assumed to follow the bivariate normal distribution, with marginal distributions N(8,6) and N(15,24), respectively. Historical data suggest that the correlation between the returns on these two stocks is p= -0.25. (a) Determine the covariance between the returns on these two stocks. [3 marks] (b) Determine the probability that the return on the portfolio is greater than 10%. [5 marks] (c) A quantitative analyst suggests a portfolio revision, by allocating p of the fund in Conservative Casualty and 1-p of the fund in Limitless Inc. Determine the portfolio proportion p that minimizes the variance of the return on the revised portfolio. [7 marks] (d) Determine the probability that the minimum-variance portfolio determined in part (c) yields a higher return than the original portfolio. [5 marks]

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Lets solve each part step by step a The covariance between two stocks in a bivariate normal distribu... View the full answer