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QUESTION
The stocks in companies A and B both cost 100 USD today. We let X and Y denote the stock price in the two companies one year from now.
The stocks in companies A and B both cost 100 USD today. We let X and Y denote the stock price in the two companies one year from now. We assume that X and Y are independent random variables with E[X] = 110, E[Y] = 110, Var[X] = 100, Var[Y] = 400. We want to invest 10 million USD in the two stocks. Let p denote the fraction invested in company A.
a. Write down the equation for the value of the portfolio one year from now.
b. What is the expected value of portfolio and its variance one year from now?
