Suppose you have $50,000 that you would like to invest in twocompanies

QUESTION

Suppose you have $50,000 that you would like to invest in twocompanies. Bethlehem Books and Allentown Audio. Bethlehem has arate of return of 10% and standard deviation 15%. While Allentownhas a return of 15% with a standard deviation of 20%. Thecorrelation coefficient between them is .5. Your portf
let w denote the weight of Bethlehem in this investmentso,w*10% (1-w)*15%=12%w=0.6 variance(RP)= w^2*variance(Bethlehem) (1-w)^2*variance (WhiteAllentown) 2*w(1-w)*correlation

em)*sd(whiteallentown)var (RP)=0.6^2*0.15^2 0.4^2*0.2^2 2*0.4*0.6*0.5*0.15*0.2=0.0217 hence, s(RP)=square root(0.0217)=0.1473=14.73%

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION