3. Stock A has a volatility of 20%, B has a volatility of 30%, and their correlation coefficient is 50%. They have the same expect returns. Suppose we can buy x share of A, and 1-x share of B. Then what the x should be for us to invest to make our portfolio has the minimum volatility?
The vols add in quadrature, with the caveat that the interference term has the correlation factor in there. So: sig(port)^2 = x^2*sig(A)^2+(1-x)^2*sig(B)^2+2*x*(1-x)*sig(A)*sig(B)*rho(AB) Take the partial with respect to x and set that equal to zero. Solve for x and get: x = 6/7
Balance Sheet-data about available resources as well as the claims to those resources Income Statement-data about the profitability of the company detailing sources of revenue and the expenses which reduce profit Cash Flows- illustrates the inflow and outflow of cash within the business. It shows where the cash comes from into the company, and how it’s used Statement of Retains Earnings-focuses on changes in retained earnings
The cash flows statement shows cash flows from operating, investing and financing activities. In the operating activities area, for example, you would add back depreciation expense to net income (since no cash has actually left your firm). Investing activities could include money from sales of land, and financing could include receiving cash from a loan, or giving out dividends to shareholders.
It is your job to sell him on the idea of mutual funds. Ask him questions about his current situation, know the customer, understand asset allocation, understand diversification and give specific examples of why investing large amounts of money in one stock takes on a lot of risk.
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