Given the following information, what is the optimum portfolio if the lending and borrowing rate is 6%, 8%, or 10%? Assume the Lintner definition of short sales.
Answer to relevant QuestionsAssume the information given in Problem 1 but that short sales are not allowed. Set up the formulation necessary to solve the portfolio problem. In Problem 1 Show that the Vasicek technique leads to a simple proportional weighting of the market beta and the stock’s beta if the standard error of all betas is the same. Complete the procedure in Appendix A for reducing a general three-index model to a three-index model with orthogonal indexes. What is the optimum portfolio assuming short sales if RF = 5% and the data from Problem 1 are used? In Problem 1 Consider the following investments. Which is preferred if U(W) = W - 0.05W2?
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