Suppose you have some money to invest = for simplicity, $1 - and you are planning to put a fraction w into a stock market mutual fund and the rest , 1- w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields Rs after 1 year and that $1 invested in a bond fund yields Rb, suppose that Rb is random with means 0.05 (5%) and standard deviation 0.04. The correlation between Rs and Rb is 0.25. If you place a fraction w of your money in the stock market and the rest, 1 - w, in the bond fund, then the return on your investment is R= wRs + (1 - w)Rb.
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A. Suppose that w = 0.5. COmputer the mean and stdv. of R.
B. Suppose that w = .75. COmputer the mean and stdv of R.
C. What value of w makes the mean of R as large as possible? What is the standard deviation of R for this value of w?
D. What is the value of w that minimizes the standard deviation of R?
No, that may describe the DISTRIBUTION of your potential investment, but it is not "the investment".
Okay, let's see your work.
First immediate question, is what does the correlation mean?... maybe obvious sorry if it is.