Question: Problem 5 (8 pts) Consider two assets A and B, the expected return of the two assets are 10% and 8% respectively, the standard deviation

Problem 5 (8 pts) Consider two assets A and B, the expected return of the two assets are 10% and 8% respectively, the standard deviation of the two assets are 20% and 40%, and the correlation between the returns of the two assets is -0.1. (a) Find the proportions o of A and (1 -a) of B that define a portfolio of A and B having minimum variance. (b) What are the expected value and the standard deviation of the return of this portfolio

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

1). Sylvia is a risk-averse investor. The expected return of Portfolio A is 10% and the standard deviation is 14%. Portfolio B has s = 22.75%, and has end-of-year cash flows of either $74,000 or...

Please answering the following questions: Question # 1 : Your company's stock sells for $ 1 5 0 per share, its last dividend was $ 3 . 0 0 per share, and its growth rate is 4 % . What is the stock's...

Question 2 (8 marks) Consider two assets A and B. Asset A offers an expected rate of return of 12% with a standard deviation of 25%. Asset B offers an expected rate of return of 8% with a standard...

(Ref. Unit 5 Exercise 1) You are constructing a risky portfolio consisting of two assets: S and B. The expected return and standard deviation of Asset S are 30% and 40%, respectively. The expected...

5. Consider two assets A and B for which return distributions can be summarized as follows E[Ra]=3% E[Rb]= 7% "variance"= 1%^2 "variance"=4%^2 "standard deviation"= 1% "standard deviation"= 2% r AB =...

Please be specific, answer all parts step by step, and show the formula you use. Thank you! 3. Consider two assets A and B for which return distributions can be summarized as follows EIR, ]-3% What...

Consider two assets, X and Y, with expected returns X = 17% and Y = 13% and with standard deviations X = 9% and Y = 6% for those returns. The two assets have a correlation, , of -0.75. a. What is the...

Question 5 You plan to invest in a portfolio which consists of shares of two assets (A and B). The expected return of asset A Not yet answered is $10 and its standard deviation is $2. The expected...

Strategic management includes an analysis of a businesss current state. Continuing with your research of Caterpillar, Inc., you will leverage the business SWOT tool to identify and drive...

Three stocks have share prices of $15, $60, and $30 with total market values of $430 million, $380 million, and $180 million, respectively. If you were to construct a price-weighted index of the...

How is collateral used in evaluating loans? Multiple choice question. Collateral is used when you apply for a credit card and the company needs payment, so they take your home and sell it for...

5. What are three disadvantages of home health nursing b. c. 6. List four duties that a home health nurse might perform in the home setting, b. d. 7. Any individual involved with the care of a client...

The background knowledge of the interpreter

The expert rule: We have more confidence in information presented by someone who is an expert in the field than by someone who is not.

How easy the information is to remember