An Analysis of the Stock Market Produces the Following Information

question 2

Essay

An analysis of the stock market produces the following information about the returns of two stocks: $\begin{array}{ll}&\text { Stock } 1 \text { Stock } 2\\\begin{array}{ll}\text {Expected Returns }\\\text { Standard Deviations}\end{array}&\begin{array}{|cc|}\hline 15 \% & 18 \% \\20 & 32 \\\hline\end{array}\end{array}$
Assume that the returns are positively correlated, with $\rho$ ₁₂ = 0.80.
a. Find the mean and standard deviation of the return on a portfolio consisting of an equal investment in each of the two stocks.
b. Suppose that you wish to invest $1 million. Discuss whether you should invest your money in stock 1, stock 2, or a portfolio composed of an equal amount of investments on both stocks.

Understand the concept and examples of proportional taxes.

Explain the differences between marginal and average tax rates.

Determine the correct deductions permissible under different filing statuses.

Calculate tax liability and understand the calculations involved in determining tax refunds.

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