Ask Question
8 August, 08:03

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 16% and a standard deviation of return of 25%. Stock B has an expected return of 11% and a standard deviation of return of 10%. The correlation coefficient between the returns of A and B is. 4. The risk-free rate of return is 9%. The proportion of the optimal risky portfolio that should be invested in stock B is approximately

+3
Answers (2)
  1. 8 August, 09:43
    0
    Answer: 26%

    Explanation:

    Given the following;

    Expected rate of return A=16% = 0.16

    Standard deviation A = 25% = 0.25

    Expected rate of return B=11%=0.11

    Standard deviation B = 13% = 0.13

    Risk free rate = 9% = 0.09

    Optimal risky portfolio that should be invested in stock B

    (0.11 - 0.09) (0.25^2) - (0.16 - 0.09) (0.1) (0.25) (0.4) / (0.11 - 0.09) (0.25^2) + (0.16 - 0.09) (0.1) (0.25) - (0.11 - 0.09+0.16 - 0.09) (0.1) (0.25) (0.4)

    = 0.00055 / 0.0021 = 0.2619

    = 26%
  2. 8 August, 10:07
    0
    26%

    Explanation:

    An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 16% and a standard deviation of return of 25%. Stock B has an expected return of 11% and a standard deviation of return of 10%. The correlation coefficient between the returns of A and B is. 4. The risk-free rate of return is 9%.

    The proportion of the optimal risky portfolio that should be invested in stock B is approximately

    = (0.11 - 0.09) (0.25^2) - (0.16 - 0.09) (0.1) (0.25) (0.4) / (0.11 - 0.09) (0.25^2) + (0.16 - 0.09) (0.1) (0.25) - (0.11 - 0.09+0.16 - 0.09) (0.1) (0.25) (0.4)

    = 0.00055 / 0.0021 = 26%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 16% and a standard deviation of ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers