3. Markowitz Diversification (continued)

• Assume that the investor invests 50% of capital stock in stock A and 50% in B

  • 1. Calculate E(R)
  • E(Rp) = ??xi E(Ri)
  • E(Rp) =.5(.05) + .5(.15)
  • E(Rp) = .025 + .075
  • E(Rp) = .10 or 10%

i=1

n

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