The Annualized Performance, in U $\sigma$ _US = 16%
Return_europe=11 $\sigma$ _europe =18%
Correlation = 0

question 12

Essay

The annualized performance, in U.S. dollars, of the U.S. and European stock indices are:
Return_US = 10% $\sigma$ _US = 16%
Return_europe=11% $\sigma$ _europe =18%
Correlation = 0.60
a. What would be the return and risk of a portfolio invested half in the U.S. market and half in the European index?
b. What if the correlation increases to 0.8?

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Definitions:

Relaxed Working Capital Policies

Financial strategies that involve maintaining higher levels of current assets than necessary or reducing short-term liabilities, aiming for greater flexibility and lower risk of liquidity problems.

Short-term Loans

Borrowed funds that require repayment within a shorter timeframe, typically less than one year.

Long-term Loans

Financial obligations that are due for repayment over a period longer than one year.

Conservative Financing

A strategy prioritizing lower risk financing options, typically involving higher equity and lower debt levels to minimize insolvency risks.