Assume that the average variance of return for an individual security is 50 and that the average covariance is 10. What is the expected variance of an equally weighted port folio of 5, 10, 20, 50, and 100 securities?
Answer to relevant QuestionsIn Problem 3, how many securities need to be held before the risk of a portfolio is only 10% more than minimum? For Problem 2, find the composition of the portfolio that has minimum variance for each of the two security combinations you considered. Consider the following data. What is the optimum portfolio, assuming short sales are allowed (standard definition)? Trace out the efficient frontier. Using Blume’s technique, where βi2 = 0.343 + 0.677βi1, calculate βi2 for the securities in Problem 5. In Problem 5 Given the multi-index model Where I*1 and I*2 are correlated, and given the regression equation I*2 = 1 + 1.3I1 + dt, transform the equation for Ri into one with orthogonal indexes.
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