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In: Finance

You are given the following information: Stock Expected return (in %) σ (in %) A 10...

You are given the following information: Stock Expected return (in %) σ (in %) A 10 10 B 5 5 The covariance between these returns is 16%2 . The risk-free rate is 6%. (a) Find the expected return and standard deviation of the following portfolios: i. 50% in A, 50% in B ii. 50% in A, 50% in the risk-free asset iii. 150% in A, financed by borrowing at the risk-free rate

Solutions

Expert Solution

A

B

Weight

50%

50%

Stock Expected return

10%

5%

Standard deviation σ

10%

5%

Covariance

16%

Risk-free rate

6%

jeff jeffy answered 3 months ago
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