Hayacinth Macaw invests 60% of her funds in stock
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Hayacinth Macaw invests 60% of her funds in stockI and the balance in stock J. The standard deviation of returns on I is 10%, and on J it is 20%. Calculate the variance of portfolio returns, assuming:
A. the correlation between the returns is 1.0
B. The correlation is .5
C. The correlatio is 0.
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Solution Summary
In this solution, we calculate the variance in portfolio returns based on the given correlation.
Solution Preview
Correlation coefficient between stock I and stock J=Corr(PiPj)
standard deviation of returns on I: si=10% = 0.1
standard deviation of returns on J: sj=20% = 0.2
Percentage invested in stock I = Pi = 0.6
Percentage invested in stock J= Pj = 0.4
A. The correlation between the returns is 1.0.
Correlation coefficient ...
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