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Suppose a firm in planning to invest $ 1,000,000 to invest in a risk free asset and a risky asset A. Assume that µf = 0.05, µA = 0.10 and ?A = 0.17. The company has capital reserves that could cover $ 100, 000 but no more and would like as a result to lose this amount or more with probability equal to 0.01. If Rp = wRA + (1?w)µf , the return of their investment, is normally distributed, find the value of w that this achieves requirement.

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Financial Management, Finance

Category:- Financial Management
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