a) expected return=4%
standard deviation=10.82%
correlation=covariance(sugarcane,best)/(std of sugarcane*std of best)
=-0.065
a)portfolio return=( wt of sugarcane*expected return of sugarcane)+( wt of sugarcane*expected return of sugarcane)
=(50%*4%)+(50%*7.5%)
=5.75%
std of portfolio=((wt of A^2*std of A^2)+(wt of B^2*std of B^2)+(2*wt of a*wt of B*corr(A,B)* std A*std B))^0.5
=((0.5*10.82%)^2)+((0.5*11.98%)^2)+(2*0.5*0.5*-0.065*10.82%*11.98%))^0.5
=7.8%
b) we can conclude that since the correlation coefficient is negative the standard deviation of portfolio is lesser than individual standard deviation
Problem 4: The Value of Best Candy stock is sensitive to the price of sugar. We...
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