Constructing portfolio by using these two stocks

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Reference no: EM131974210

Suppose Foxgo is an ISO app development company with its stock expected return of 23% and its stock volatility of 53%. Cowump is a global paper company with its stock expcected return of 8% and its stock volatility is 17%. If the correlation between Foxgo and Cowump is zero. The risk-free rate is 2% per year.

1. Your uncle is interested in constructing a portfolio by using these two stocks however he prefers having the same volatility as Cowump. If short selling is not feasible, then what is the weight of each stock respectively? (Choose the closest answer)

A) 21.3 of Foxgo, 78.6% of Cowump.

B) 50% of Foxgo, 50% of Cowump

C) 18.7% of Foxgo, 81.3 of Cowupm

D) 32.4% of Foxgo, 67.6 of Cowump.

2. If your uncle wants to optimize the volatility of his portfolio and short selling is not feasible, what is the weight of each stock respectively? (Choose the clocest answer)

A) 8.8% of Foxgo, 91.2% of Cowump

B) 17.3 % of Foxgo, 82.7% of Cowump

C) 32.4 % of Foxgo, 67.6% of Cowump

D) 5.2% of Foxgo, 94.8% of Cowump

Reference no: EM131974210

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