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tester [92]
4 years ago
9

6. Asset 1 has an expected mean return of µ1 =9%, standard deviation of its return is σ1 = 6%. Asset 2 has an expected mean retu

rn of µ2 = 14%, with a standard deviation of σ2 = 11%. The correlation coefficient between returns on these two assets is rho1,2 = −1. If you invest all your financial wealth on a portfolio holding only these two assets such that w1 + w2 = 1. How should you choose weights w1and w2 such that the portfolio is risk free (i.e., σp = 0)? In that scenario, what is your expected return on that portfolio, E (rp)?
Business
1 answer:
Paraphin [41]4 years ago
4 0

Answer:

Weight w1 = 0.65

Weight w2 = 0.35

Expected return =10.75%

Explanation:

w1 + w2 = 1 ........... (1)

w1 = SD of asset 2/(SD of asset 1 + SD of asset 2)

w1 = 11 ÷ (6 + 11) ⇒ 0.65

∴ w2 = 1 - w1 ⇒ 1 - 0.65

w2 = 0.35

Expected return = Weighted average

[0.65 × 9] + [0.35 × 14] ⇒ 10.75%

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3 years ago
Kathleen is considering expanding her dress shop. If interest rates rise she is Group of answer choices less likely to expand. T
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Answer:

<u><em>Less likely to expand.</em></u>

Explanation:

When ever interest rates rise in an economy, the soul purpose of that is to control inflation by influencing the people to save more and consume/spend less.

Hence, when the interest rates will rise, Kathleen will be moving away from the expansion process as she will have to borrow the money at more cost than before, hence increasing the risk of return from the expansion process. Hence this will lead to the demand for loan-able funds to slope downwards.

Hope this helps you. Good Luck.

7 0
3 years ago
Last year there was no change in either the raw materials or the work in process beginning and ending inventories. However, fini
dsp73

Answer:

d. $625,000

Explanation:

cost of goods available for sale = cost of goods manufactured during the current period + finished goods inventory at the beginning of the period

  • cost of goods manufactured during the current period = $600,000
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Michaels plumbing purchased a used van for $3,250. the company made a down payment of $450 and agrees to 24 payments of $150 per
PolarNik [594]
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The company is managed and directed by its directors and officers. Directors are appointed by shareholders and are responsible for the overall management and corporation governance of the company. The directors appoint officers who are responsible for the day-to-day management and operations of the company.

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