Asked by
Tyler Gilliatt
on Oct 20, 2024
Verified
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is ________.
A) 0%
B) 5%
C) 7%
D) 20%
Risk-Free Rate
The theoretical return on investment with no risk of financial loss, typically represented by the yield on government securities.
Standard Deviation
A statistical measure that quantifies the amount of variability or dispersion around an average.
Optimal
The most favorable or desirable condition, outcome, or level, often in terms of efficiency or success.
- Comprehend the principles of designing risky portfolios, including the calculation of expected returns and optimal risky portfolio proportion.
Verified Answer
SL
Learning Objectives
- Comprehend the principles of designing risky portfolios, including the calculation of expected returns and optimal risky portfolio proportion.