Let today be period 0 and the future (or tomorrow) be period 1: Consider an investor...
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Let today be period 0 and the future (or tomorrow) be period 1: Consider an investor in period 0, who is contemplating making the decision to invest in a portfolio that consists of two stocks: A and B. The economic conditions in period 1 are probabilistic and, thus, uncertain. Suppose the investor is expecting two states of nature: S₁ and S₂ in period 1, with probabilities 0.5 and 0.5 respectively. Let P40 and P41 denote stock A's price in period 0 and period 1 respectively. Also, since period 1 depends on the state of nature, let (P41)s, and (PA1) denote stock A's price in period 1 in states 1 and 2 respectively. Similar notation is used to denote period 0 and period 1 S₂ prices of stock B. The following data pertain to our two-period-two-states setup: PA0 = $4 (PA1) S₁ = $4.12 and (PA1) S₂ = $4.08 PB0= $5 (PB₁) S₁ = $5.1 and (PB1) S₂ = $5.25 Suppose you decided to construct a portfolio p such that 40% of your wealth is allocated to asset A and 60% to B. Given this allocation, the risk of this portfolio is? (If your final answer is 0.1%, record it as 0.001). Keep three decimal places in your computations. Let today be period 0 and the future (or tomorrow) be period 1: Consider an investor in period 0, who is contemplating making the decision to invest in a portfolio that consists of two stocks: A and B. The economic conditions in period 1 are probabilistic and, thus, uncertain. Suppose the investor is expecting two states of nature: S₁ and S₂ in period 1, with probabilities 0.5 and 0.5 respectively. Let P40 and P41 denote stock A's price in period 0 and period 1 respectively. Also, since period 1 depends on the state of nature, let (P41)s, and (PA1) denote stock A's price in period 1 in states 1 and 2 respectively. Similar notation is used to denote period 0 and period 1 S₂ prices of stock B. The following data pertain to our two-period-two-states setup: PA0 = $4 (PA1) S₁ = $4.12 and (PA1) S₂ = $4.08 PB0= $5 (PB₁) S₁ = $5.1 and (PB1) S₂ = $5.25 Suppose you decided to construct a portfolio p such that 40% of your wealth is allocated to asset A and 60% to B. Given this allocation, the risk of this portfolio is? (If your final answer is 0.1%, record it as 0.001). Keep three decimal places in your computations.
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Related Book For
Chemistry The Central Science
ISBN: 978-0321696724
12th edition
Authors: Theodore Brown, Eugene LeMay, Bruce Bursten, Catherine Murphy, Patrick Woodward
Posted Date:
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