Question: E4 v IX fx 0.8 A B C D E F G H J K L M N O P 1 Consider the following two

E4 v IX fx 0.8 A B C D E F G H J K L M N O P 1 Consider the following two stocks and T-Bill: 2 Expected Price Per PAB Security return Share (Correlation) 4 A 12% 30% $100 0.8 5 B 9% 20% $75 T-Bill 2% 0% 7 8 a. Suppose you buy 50 shares of stock A and 50 shares of stock B. What is the expected return of this portfolio and what is its standard deviation? 9 (Hint - first calculate what fraction of your investment in A and in B). 10 b. Suppose that instead of buying 50 shares of stock A and 50 shares of stock B you decided to buy only 25 shares of stock A, 25 shares of stock B, 11 and with the rest of the money buy Treasury bills. What is the expected return of this portfolio and what is its standard deviation. 12 (Hint: use the result in (a) to calculate the standard deviation of a portfolio composed of half (A+B) and half in T-bill). 13 14 15 16 17 18 19 20 21 22 23 24

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