Stock a Has an Expected Return of 8% and a Standard

question 22

Essay

Stock A has an expected return of 8% and a standard deviation of 40%.Stock B has an expected return of 13% and standard deviation of 60%.The correlation between A and B is -1 (i.e.,they are perfectly negatively correlated).Show that you can form a zero risk portfolio by investing $w _ { A } = \frac { \sigma _ { B } } { \sigma _ { A } + \sigma _ { B } }$ in A and the rest in B.

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Definitions:

Quantity Demanded

The amount of a good or service that consumers are willing and able to purchase at a given price over a specified period.

Government Imposes

Refers to regulations, taxes, or policies that a government enforces to influence economic or social outcomes.

Price Ceiling

A maximum price that sellers may charge for a good, usually set by government.

Government Setting

The environment and conditions created by governmental policies, laws, and regulations.