A small company is to decide what investments to use for cash generated from operations
Chapter 5, Problem 5-93(choose chapter or problem)
A small company is to decide what investments to use for cash generated from operations. Each investment has a mean and standard deviation associated with the percentage gain. The first security has a mean percentage gain of 5% with a standard deviation of 2%, and the second security provides the same mean of 5% with a standard deviation of 4%. The securities have a correlation of 0.5, so there is a negative correlation between the percentage returns. If the company invests two million dollars with half in each security, what are the mean and standard deviation of the percentage return? Compare the standard deviation of this strategy to one that invests the two million dollars into the first security only.
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