Exhibit 7.14
Use the Information Below for the Following Problem(S)
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed.
$$\begin{array} { c c c }
\text { Stack } & \text { Expected Return } & \text { Standard Devintion } \
\hline \text { A } & 20 \% & 25 \% \
B & 15 \% & 19 \%
\end{array}$$
-Refer to Exhibit 7.14.What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?
A) 35%
B) 42%
C) 58%
D) 65%
E) 72%

Question

Exhibit 7.14
Use the Information Below for the Following Problem(S)
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed.
 $$\begin{array} { c c c } 
\text { Stack } & \text { Expected Return } & \text { Standard Devintion } \
\hline \text { A } & 20 \% & 25 \% \
B & 15 \% & 19 \%
\end{array}$$
-Refer to Exhibit 7.14.What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?
A) 35%
B) 42%
C) 58%
D) 65%
E) 72%

Quizplus · Accepted Answer

$$\frac { ( .19 ) ^ { 2 } - ( - 0.8 ) ( .25 ) ( .19 ) } { ( .25 ) ^ { 2 } + ( .19 ) ^ { 2 } - 2 ( - 0.8 ) ( .25 ) ( .19 ) } = \frac { .0361 + .0380 } { .0625 + .0361 + .0760 } = \frac { .0741 } { .1746 } = 0.4244$$

Exhibit 714 Use the Information Below for the Following Problem(S) Stocks

Exhibit 714
Use the Information Below for the Following Problem(S)
Stocks