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You are given the following information: a) What are the expected returns and standard deviations of a portfolio consisting of:

Question:

You are given the following information:

You are given the following information: .:. a) What


a) What are the expected returns and standard deviations of a portfolio consisting of:
1. 100 percent in stock A?
2. 100 percent in stock B?
3. 50 percent in each stock?
4. 25 percent in stock A and 75 percent in stock B?
5. 75 percent in stock A and 25 percent in stock B?
b) Compare the above returns and the risk associated with each portfolio.
c) Redo the calculations assuming that the correlation coefficient of the returns on the two stocks is 20.6. What is the impact of this difference in the correlationcoefficient?

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Expected return on stock A Expected return on stock B Standard deviation of returns 12% 20% stock A stock B 1.0 6.0 Correlation coefficient of the returns on stocks A and B

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a Position Expected Return Standard Deviation All A 12 1 00 All B 20 6 00 50 A 50 B 16 3 14 2…View the full answer


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Investments An Introduction

Investments An Introduction

ISBN: 978-0324561388

9th Edition

Authors: Herbert B Mayo

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Question Posted: June 26, 2012 05:26:55
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.

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