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1. Assume three securities have the same expected return and standard deviation. You are considering equal investment is two of the securities. Covariances are as follows: A with B = .032; A with C = 0; B with C = -.40. Which combination, if any, would you recommend holding due to the highest Sharpe ratio that would result from the combination?

A) A and B

B) B and C

C) A and C

D) Cannot determine with information provided.

2. A. What is true volatility?

B. Briefly discuss why the true volatility that should be used in the Black-Scholes formula might differ from the historical volatility.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92764336

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