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  3. you form two risky portfolios a and b by investing

You form two risky portfolios A and B by investing in Stocks D, E, and...

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Finance

  1. You form two risky portfolios A and B by investing in Stocks D, E, and F.
  1. You invest 1/2 of your money in Stock D and 1/2 in Stock E. The correlation between Stock D and Stock E is 0.5 while the standard deviation of Stock D is 40% and the standard deviation of Stock E is 20%. Figure out the standard deviation and the expected return of the risky portfolio A. (Please use the expected return for Stock E calculated at Question 3)-a) above.)

  1. You invest 1/8 of your money in Stock E and 7/8 in Stock F. The correlation between Stock E and Stock F is 0.8 while the standard deviation of Stock E is 20% and the standard deviation of Stock F is 25%. Figure out the standard deviation and the expected return of the risky portfolio B. (Please use the expected return for Stocks E and F calculated at Question 3)-a) & b) above.)
  1. Given the risk-free rate of 3%, figure out the Sharpe ratio for Portfolios A and B and choose a better portfolio.

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