---
title: "Recitation 5 Note"
author: "Yiming Gong"
date: "2021-07-29T02:48:38Z"
link: "https://bookdown.org/yg484/rec_5_note/"
length_weight: "2%"
pinned: false
---

This is class note for recitation 5. [...] Compute the value \(V (1)\) of a portfolio worth initially \(V (0) = 100\)
dollars that consists of two securities with weights \(w_1 = 25\%\) and
\(w_2 = 75\%\), given that the security prices are \(S_1(0) = 45\) and \(S_2(0) = 33\)
dollars initially, changing to \(S_1(1) = 48\) and \(S_2(1) = 32\) dollars. Question: which stock is the most risky? Even though an investment in either stock separately involves risk, we have reduced
the overall risk to nil by splitting the investment between the two stocks. This is
a simple example of diversification, ...
