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 25 % Stock B has an expected return of 14 % and a standard deviation of return of 30 % . The correlation coefficient between the returns of A and B is 0.50 . What is the optimal weight of the maximum variance stock that should be held to his portfolio? 32% 39% 61% 68%
Added by Jill D.
Step 1
Variance is the square of the standard deviation. So, the variance of stock A is 0.25^2 = 0.0625 and the variance of stock B is 0.30^2 = 0.09. Therefore, stock B has the maximum variance. Show moreā¦
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