(e)  Find the volatility of the portfolio in (d).

(f)  Would anyone prefer stock A to the portfolio in (d)?  Why or why not.

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Suppose that there are two assets: A and B. Asset A has expected return of 20% and standard deviation of o* and Asset B has expected return of 12% and standard deviation of o*. Expected Return (E(R)) 20% 12% ● B Standard Deviation (G) Evaluate the following statements independently: (a) "As B is strictly dominated by A in terms of total risk (standard deviation), there is no value in having B in portfolio formation." (Without doing any calculation) [1 point] (b) "If the correlation coefficient p between A and B = 1, it is always optimal to invest in A only." (Show your proof) [2 points] (c) "If the correlation coefficient p between A and B = -1, it is always optimal to invest in 50% in A and 50% in B when forming a minimum variance portfolio of the two." (Show your proof) [2 points] (d) "Given that GA= OB-G*, it is always optimal to combine half of A and half of B when forming a minimum variance portfolio of the two when p € (-1,1)." (Show your proof) [2 points] Suppose that there are two assets: A and B. Asset A has expected return of 20% and standard deviation of o* and Asset B has expected return of 12% and standard deviation of o*. Expected Return (E(R)) 20% 12% ● B Standard Deviation (G) Evaluate the following statements independently: (a) "As B is strictly dominated by A in terms of total risk (standard deviation), there is no value in having B in portfolio formation." (Without doing any calculation) [1 point] (b) "If the correlation coefficient p between A and B = 1, it is always optimal to invest in A only." (Show your proof) [2 points] (c) "If the correlation coefficient p between A and B = -1, it is always optimal to invest in 50% in A and 50% in B when forming a minimum variance portfolio of the two." (Show your proof) [2 points] (d) "Given that GA= OB-G*, it is always optimal to combine half of A and half of B when forming a minimum variance portfolio of the two when p € (-1,1)." (Show your proof) [2 points]

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a To calculate the risk premium first determine the variance of the residuals by squaring the residual standard deviation Then use the expected return ... View the full answer