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Portfolio theory i docx

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PORTFOLIO THEORY ASSIGNMENT QUESTION Four assets have the following distribution of returns. A 10.0% 10.0 10.0 10.0 10.0 Rate of return (%) B C D 6.0% 14.0% 2.0% 8.0 12.0 6.0 10.0 10.0 9.0 12.0 8.0 15.0 14.0 6.0 20.0 sh is ar stu ed d v i y re aC s o ou urc rs e eH w er as o. co m Probability Occurrence 0.1 0.2 0.4 0.2 0.1 REQUIRED: a. Compute the expected return and standard deviation of each asset. b. Compute the covariance of asset i. A and B ii. B and C iii. B and D c. Compute the correlation coefficient of the combination of assets in b above. Th Solution a. E(RA) 10(0.1) = = 10(0.1) + 10(0.2) + 10(0.4) + 10(0.2) + 10% E(RB) 14(0.1) = = 6(0.1) 10% E(RC) 6(0.1) = = 14(0.1) 10% + + 8(0.2) + 12(0.2) 10(0.4) + 10(0.4) This study source was downloaded by 100000824873927 from CourseHero.com on 05-27-2021 21:18:12 GMT -05:00 https://www.coursehero.com/file/59806627/Portfolio-Theory-Idocx/ + 12(0.2) + + 8(0.2) + E(RD) 20(0.1) = = 2(0.1) 10% + 6(0.2) + 9(0.4) + 15(0.2) + 5 δA = √∑ 2 ¿ ( R Ai - E( R A ) ) Pi i=1 ¿ = 0 since (RAi - E(R)A) = 0% δ B = √(6 - 10)† 0 .1 + (8 - 10)† 0.2 + (10 - 10 )† 0 . 4 + (12 - 10)† 0. 2 + ( ...
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