5. The universe of available securities includes two risky stock funds, A and B, and T-bills. The data for the universe are as follows: A B T-bills Expected Return 10% 30% 5 Standard Deviation 20% 60% 0 The correlation coefficient between funds A and B is -0.2. a. Compute the covariance between the funds. b. Find the optimal risky portfolio, P, and its expected return and standard deviation. c. Find the slope of the CAL supported by T-bills and portfolio P. d. How much will an investor with A = 5 invest in funds A and B and in T-bills?

5. The universe of available securities includes two risky stock funds, A and B, and T-bills. The data for the universe are as follows: A B T-bills Expected Return 10% 30% 5 Standard Deviation 20% 60% 0 The correlation coefficient between funds A and B is -0.2. a. Compute the covariance between the funds. b. Find the optimal risky portfolio, P, and its expected return and standard deviation. c. Find the slope of the CAL supported by T-bills and portfolio P. d. How much will an investor with A = 5 invest in funds A and B and in T-bills?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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