Consider the following expected returns, volatilities, and correlations Stock Expected Return Standard Deviation Correlation with IBM Correlation with Alphabet IMB 3 5 1 0 1 0 Alphabet 10 20 1 0 1 0 Consider a portfolio consisting of only IBM and Alphabet Calculate the percentage of your investment (portfolio weight) that you would place in IBM stock to achieve a risk free investment Show all your work Based on your finding in Part (a), what is the expected return of your portfolio What is the risk free rate in this market, assuming the market is efficient and perfect Consider a portfolio consisting of only IBM and Alphabet Calculate the expected return and standard deviation on such a portfolio when the weight on IBM stock is 60 , 80 , and 100 Based on your answer in Part (c), identify the efficient portfolios consisting of only IBM and Alphabet, when the weight on IBM stock is 60 , 80 , and 100

Question: Consider the following expected returns, volatilities, and correlations: Stock Expected Return Standard Deviation Correlation with IBM Correlation with Alphabet IMB 3% 5% 1.0 -1.0 Alphabet

Consider the following expected returns, volatilities, and correlations:

Stock	Expected Return	Standard Deviation	Correlation with IBM	Correlation with Alphabet
IMB	3%	5%	1.0	-1.0
Alphabet	10%	20%	-1.0	1.0

Consider a portfolio consisting of only IBM and Alphabet. Calculate the percentage of your investment (portfolio weight) that you would place in IBM stock to achieve a risk-free investment. Show all your work.
Based on your finding in Part (a), what is the expected return of your portfolio? What is the risk-free rate in this market, assuming the market is efficient and perfect?
Consider a portfolio consisting of only IBM and Alphabet. Calculate the expected return and standard deviation on such a portfolio when the weight on IBM stock is 60%, 80%, and 100%.
Based on your answer in Part (c), identify the efficient portfolios consisting of only IBM and Alphabet, when the weight on IBM stock is 60%, 80%, and 100%.

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SOLUTION a To achieve a riskfree investment we need to find the portfolio with zero standard deviation The formula for portfolio standard deviation is as follows Portfolio standard deviation sqrtw12 1... View full answer

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