Expected return and return standard deviation

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Reference no: EM131912405

Consider stock A with expected return rA and return standard deviation sA, and stock B with expected return rB and return standard deviation sB. Assume the two stocks are perfectly positively correlated and that sA>sB or sA<sB. What are the portfolio weights xA for stock A, and xB for stock B that would make the portfolio return a risk free payoff?

A. xA=(sB/( sB- sA)); xB=(sA/( sA- sB))

B. xA=50%; xB=50%

C. xA=(sA/( sB- sA)); xB=(sB/( sB- sA))

D. None of the above as both stocks have risky returns.

Reference no: EM131912405

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