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F. Naz, B.Com

Category: Multiple Problems

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Experience: have completed B.Com and CA Finalist

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Risk and Return.
Suppose you purchased $1,000 of Stock A

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Risk and Return. Suppose you purchased $1,000 of Stock A with your own money. You then borrowed $500 and used this money to buy Stock B. This means that the portfolio weights are as follows: wA = 1000/1000 = 1.00; wB = 500/1000 = 0.50; wC = -500/1000 = -0.50. The correlation coefficient between A and B is 0.70; interest rate on the risk-free asset (Security C) is 5%; variance of Stock A is 0.25; variance of Stock B is 0.49; expected return on Stock A is 10% and Stock B is 16%. Risk and Return. Calculate the variance of a portfolio of the three securities.

When you will click on respective cell the figures will be shown. However, it has been calculated as follows: 1*0.5*.25*.49+0.5*-0.5*.49*.49+1*-0.5*.25*.49 = -.06003