Please Solve Full Question.... Country X is growing rapidly and you are managing...
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Country X is growing rapidly and you are managing a global equity fund and so far you have invested only in developed-country stocks only. Now you have decided to add stocks of Country X to your portfolio. The table below shows the expected rates of return, standard deviations, and correlation coefficients (all estimates are for aggregate stock market of developed countries and stock market of Country X). Assuming the risk-free interest rate to be 3%, you are required to determine: (a) What percentage of your portfolio should you allocate to stocks of Country X if you want to increase the expected rate of return on your portfolio by 0.5% ? (b) What will be the standard deviation of your portfolio assuming that stocks of Country X are included in the portfolio as calculated above? (c) Also show how well the Fund will be compensated for the risk undertaken due to inclusion of stocks of Country X in the portfolio
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