Homework Answers
a) Expected Returns = 50% x 20% + 50% x 10% = 15%
Volatility = [(50% x 40%)^2 + (50% x 30%)^2]^(1/2) = 25%
b) No. You are getting higher returns with lower volatility by investing equally in two stocks.
c) No. You are getting higher returns per unit of volatility by investing equally in two stocks over Ford Motor stock.
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