Asked by
Marucs Zhang
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 proportion of the optimal risky portfolio that should be invested in stock A is ________.
A) 0%
B) 40%
C) 60%
D) 100%
Risk-Free Rate
The theoretical rate of return on an investment with no risk of financial loss, typically represented by government bonds.
Standard Deviation
A statistical measure of the dispersion or variability in a dataset, commonly used in finance to measure the volatility or risk associated with a particular investment.
Optimal
Referring to the most favorable or advantageous condition or level.
- Absorb the foundational strategies for developing portfolios with substantial risk by calculating expected returns and determining the ideal composition of risky investments.
Verified Answer
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Learning Objectives
- Absorb the foundational strategies for developing portfolios with substantial risk by calculating expected returns and determining the ideal composition of risky investments.