Bonus (4 Marks) Assume the following statistics for Stocks A, B, and C: Stock A...
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Bonus (4 Marks) Assume the following statistics for Stocks A, B, and C: Stock A Expected return 20.0% Standard deviation 23.2% Stock B 14.0% 13.6% Stock C 10.0% 19.5% Stock B Stock C The correlation coefficients between the three stocks are: Stock A Stock A 1 Stock B 0.286 Stock C 0.132 0.605 1 1. An investor seeks a portfolio return of 12 percent. Which combinations of the three stocks accomplish this objective? Which of those combinations achieves the least amount of risk? 2. An investor seeks a maximum variance of the portfolio of 1 percent. Which combinations of the three stocks accomplish this objective? Which of those combinations achieves the highest expected return? Equation Needed: E(8) = 2x E( )] R,R o=I%** XX P.00 where x, = proportion of portfolio 11 where x = proportion of total investment in Security i invested in security i and P = correlation coefficient between x=1 Security and Security
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