Question: Stock A has Expected Return r A = 11.75% and Standard Deviation sigma A =6.5%. Stock B has Expected Return r B =12.5% and Standard
Stock A has Expected Return rA= 11.75% and Standard Deviation sigmaA=6.5%.
Stock B has Expected Return rB=12.5% and Standard Deviation sigmaB=13.92%.
Investors can borrow and lend at the risk-less interest rate rf = 5%.
All feasible portfolios include only one of the risky assets.
Consider a Mean Variance Investor. What is the best achievable Risk-Return tradeoff line?
| r = rf -[(rA- rf) / sigmaA] sigma | ||
| r = rf -[(rB- rf) sigmaB] sigma | ||
| r = rf +[(rA- rf) / sigmaA] sigma | ||
| r = rf +[(rB- rf) / sigmaB] sigma |
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