Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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6. Stock A and B have expected return and standard deviation respectively as
follow
Stock
Expected return
Standard deviation
A
11%
13%
B
23%
18%
Correlation between A and B= 0.45
Risk-free rate = 4%
%3D
a) Which portfolio should be invested if investor is considering between Risky
portfolio 1 (30% in stock A and 70% in stock B) and portfolio 2 (25% in
stock A and 75% in stock B)
b) If Investor add a risk-free asset C with a return of 5% into the risky portfolio
that was choosed in part (a) to form a complete portfolio. What should the
optimal proportions of risky portfolio and risk-free asset for an investor
whose degree of risk aversion is 3.
c) Calculate the expected return and standard deviation of the complete
portfolio
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Transcribed Image Text:6. Stock A and B have expected return and standard deviation respectively as follow Stock Expected return Standard deviation A 11% 13% B 23% 18% Correlation between A and B= 0.45 Risk-free rate = 4% %3D a) Which portfolio should be invested if investor is considering between Risky portfolio 1 (30% in stock A and 70% in stock B) and portfolio 2 (25% in stock A and 75% in stock B) b) If Investor add a risk-free asset C with a return of 5% into the risky portfolio that was choosed in part (a) to form a complete portfolio. What should the optimal proportions of risky portfolio and risk-free asset for an investor whose degree of risk aversion is 3. c) Calculate the expected return and standard deviation of the complete portfolio
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