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You are a portfolio investor and, for simplicity, are investing in only two assets. You must invest in one asset(called Asset A) and then choose one additional asset from a choice of 3 assets. The asset you must invest in has a variance of 0.09. Now, you must choose 1 asset from the following 3.

i) asset B has a variance of 0.04 and a correlation of 0.90 with Asset A.

ii) Asset C has a variance of 0.04 and a correlation of 0.45 with Asset A.

iii) Asset D has a standard deviation of 0.25 and a correlation of 0.35 with Asset A.

Assume equal weights in Asset A and the 2nd asset you choose. You are to choose the asset that provides you the lowest portfolio risk. Which asset do you choose? (please show all work for i, ii and iii.)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92758579

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