Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation

6 answers
Question:

Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. The risk-free portfolio that can be formed with the two securities will earn a(n) rate of return.

Answers

0.43

Explanation:

The computation of the weight of Security A for the minimum variance portfolio is shown below:

Weight of security A is

= (Standard deviation of Security B) ÷ (Sum of the standard deviation of securities)

= (12%) ÷ (16% + 12%)

= (12%) ÷ (28%)

= 0.43

We simply applied the above formula so that the weight of Security A

0.50 and 0.57

Explanation:

According to the scenario, computation of the given data are as follow:-

We can calculate the weight of global minimum variance portfolio by using following formula:-

Weight of A = standard deviation of security B ÷  standard deviation of security B + standard deviation of security A

= 12% ÷ (12%+16%)

= 0.12 ÷ (0.12+0.16)

= 0.12 ÷ 0.28

= 0.428571

= 0.50

Weight of B = 1 - Weight of A

= 1 - 0.428571

= 0.571429

= 0.57

According to the analysis, the weight of A is 0.50 and the weight of B is 0.57.

 

D) 9.0%

Explanation:

Calculation to determine what The risk-free portfolio that can be formed with the two securities will earn

Using this formula

Return of the portfolio =Weight of stock A * Return of Stock A + Weight of Stock B * Return of Stock B

Let plug in the formula

Return of the portfolio=( 0.5 * 0.1)+ (0.5 * 0.08)

Return of the portfolio= 0.05 + 0.04

Return of the portfolio= 0.09*100

Return of the portfolio= 9%

Therefore The risk-free portfolio that can be formed with the two securities will earn a(n) 9.0% rate of return.

I’m sorry for making it happen again but it’s not like that

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Answer the study of how household and firms make choices,how they interact in market and how the government attempts to influence their choices;

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