Assume a world that meets all assumptions of the portfolio theory. In this world we solely trade in securities A and B like depicted in the raph below. Short selling is allowed. XA and XB indicate the proportions of security A and B within a portfolio respectively. P1, P2, P3 and P4- epresent portfolios that can be created by trading (either long and/or short) in securities A and B. P3 is the portfolio with the lowest risk; the isk of P3 is 0%. The risk of security A and B is measured by the standard deviation of the returns in the particular security and equals 20% or both. The correlation coefficient of the returns between A and B is -1. 40% P1 E(R) 30% + P2 20% P3 10% P4 0% 10% 20% 30% 40% o(R) Question: Indicate which statements are correct. Take into account that everything is possible, from all correct to all wrong. B.

Assume a world that meets all assumptions of the portfolio theory. In this world we solely trade in securities A and B like depicted in the raph below. Short selling is allowed. XA and XB indicate the proportions of security A and B within a portfolio respectively. P1, P2, P3 and P4- epresent portfolios that can be created by trading (either long and/or short) in securities A and B. P3 is the portfolio with the lowest risk; the isk of P3 is 0%. The risk of security A and B is measured by the standard deviation of the returns in the particular security and equals 20% or both. The correlation coefficient of the returns between A and B is -1. 40% P1 E(R) 30% + P2 20% P3 10% P4 0% 10% 20% 30% 40% o(R) Question: Indicate which statements are correct. Take into account that everything is possible, from all correct to all wrong. B.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 21P

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