An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of .21 and a standard deviation of return of 39. Stock B has an expected return of .14 and a standard deviation of return of .20. The correlation between the returns of A and B is -0.4. The risk-free rate of return is .05. What is the expected return on the optimal risky portfolio (rounded to the nearest .0001)?

Calculus For The Life Sciences
2nd Edition
ISBN:9780321964038
Author:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Chapter1: Functions
Section1.2: The Least Square Line
Problem 1E
icon
Related questions
Question
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of .21 and a standard deviation of
return of .39. Stock B has an expected return of .14 and a standard deviation of return of .20. The correlation between the returns of A and B
is -0.4. The risk-free rate of return is .05. What is the expected return on the optimal risky portfolio (rounded to the nearest .0001)?
Transcribed Image Text:An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of .21 and a standard deviation of return of .39. Stock B has an expected return of .14 and a standard deviation of return of .20. The correlation between the returns of A and B is -0.4. The risk-free rate of return is .05. What is the expected return on the optimal risky portfolio (rounded to the nearest .0001)?
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Recommended textbooks for you
Calculus For The Life Sciences
Calculus For The Life Sciences
Calculus
ISBN:
9780321964038
Author:
GREENWELL, Raymond N., RITCHEY, Nathan P., Lial, Margaret L.
Publisher:
Pearson Addison Wesley,
College Algebra
College Algebra
Algebra
ISBN:
9781938168383
Author:
Jay Abramson
Publisher:
OpenStax
Glencoe Algebra 1, Student Edition, 9780079039897…
Glencoe Algebra 1, Student Edition, 9780079039897…
Algebra
ISBN:
9780079039897
Author:
Carter
Publisher:
McGraw Hill