Answered

At Westonci.ca, we provide reliable answers to your questions from a community of experts. Start exploring today! Our platform connects you with professionals ready to provide precise answers to all your questions in various areas of expertise. Experience the convenience of finding accurate answers to your questions from knowledgeable experts on our platform.

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 11% and a standard deviation of return of 18.0%. Stock B has an expected return of 7% and a standard deviation of return of 3%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 5%. The proportion of the optimal risky portfolio that should be invested in stock A is _________.
a. 0%.
b. 50%.
c. 32%.
d. 55%.

Sagot :

ogorwyne

Answer:

A. 0%

Explanation:

The expected rate of return of A = 11%

Expected rate of return of B = 7%

Risk free rate = rfr = 5%

Sdb = 3%

SDa = 18%

Correlation coefficient = 0.50

The formula used to solve for the required answer is in the attachment.

When computed, we have

0.000054-0.000054/0.000036+0.000216

= 0/0.000252

= 0

Therefore the first option is the correct answer

0% should be invested in stock A.

View image ogorwyne
We hope you found this helpful. Feel free to come back anytime for more accurate answers and updated information. Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.