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Calculate the covariance between share jay and kay returns

Question 1: Portfolio valuation

Consider shares in two companies, JAY and KAY, as follows:

	Expected Return E(R)	Standard Deviation s	Correlation Coefficient r
Share JAY	12%	18%	- 0.3
Share KAY	24%	32%

a) Calculate the covariance between Share JAY and KAY returns.

b) What is the expected return and standard deviation of returns on a portfolio comprising 35% in Share JAY and 65% in Share KAY?

c) If you wanted to create a portfolio consisting only of these two shares, how much would you need to invest (weights) in each share so that your portfolio return would be equal to 15.6%? Note: do not round.

d) Using the weights calculated in part c), calculate the variance and standard deviation of your portfolio.

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