Assume three securities have the same expected return and, Financial Management

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Assume three securities have the same expected return and

1. Assume three securities have the same expected return and standard deviation. You are considering equal investment is two of the securities. Covariances are as follows: A with B = .032; A with C = 0; B with C = -.40. Which combination, if any, would you recommend holding due to the highest Sharpe ratio that would result from the combination?

A) A and B

B) B and C

C) A and C

D) Cannot determine with information provided.

2. A. What is true volatility?

B. Briefly discuss why the true volatility that should be used in the Black-Scholes formula might differ from the historical volatility.

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Financial Management: Assume three securities have the same expected return and

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