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You are planning to invest $1,000,000. Two securities are available, A and B, and you can invest in either of them or in a portfolio with some of each. You estimate that the following probability distributions of returns are applicable for A and B: Stock A Return 12 18 Probability 60 40 Stock B Return 14 06 Probability 10 90

You are planning to invest $1,000,000. Two securities are available, A and B, and you can invest in either of them or in a portfolio with some of each. You estimate that the following probability distributions of returns are applicable for A and B: Stock A Return 12 18 Probability 60 40 Stock B Return 14 06 Probability 10 90

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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1 n You are planning to invest $1,000,000. Two securities are available, A and B, and you can invest in either of them or in a portfolio with some of each. You estimate that the following probability distributions of returns are applicable for A and B: Stock A Return 12 18 Probability Select one: O a. 72% O b. 25.7% O c. 12.8% O d. 39% O e. 42.5% 60 40 Stock B Return 14 06 Probability 10 90 Find the weight percentage invested in stock A (i.e. WA) that produces the minimum risk portfolio, assume that the coefficient of correlation between stocks A and B i.e. PAB = -0.5. Assume that both standard deviations of stocks A and B are 12.8% and 25.7% respectively.
Transcribed Image Text:1 n You are planning to invest $1,000,000. Two securities are available, A and B, and you can invest in either of them or in a portfolio with some of each. You estimate that the following probability distributions of returns are applicable for A and B: Stock A Return 12 18 Probability Select one: O a. 72% O b. 25.7% O c. 12.8% O d. 39% O e. 42.5% 60 40 Stock B Return 14 06 Probability 10 90 Find the weight percentage invested in stock A (i.e. WA) that produces the minimum risk portfolio, assume that the coefficient of correlation between stocks A and B i.e. PAB = -0.5. Assume that both standard deviations of stocks A and B are 12.8% and 25.7% respectively.
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