2. Suppose there are only 3 stocks in the economy A, B and C. We are...
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2. Suppose there are only 3 stocks in the economy A, B and C. We are given two prtfolios P and P2: P = (0.4, 0.2, 0.4) P = (0.6, -0.4, 0.8) that are on the frontier. This means that there does not exist a portfolio that has the same expected return with a lower risk level. We are also given that: T = 5%, T2 = 12% 0 = 0.4, 02 = 0.8.01,2 = 0. (a) Find the minimum variance portfolio. (b) Are portfolios P and P2 efficient? Explain. (c) Two portfolios on the frontier are called 'twins' if they share the same risk level. Find the twins of both P and P2 and the expected returns of these portfolios. ( (d) Are the twins that you calculated efficient? Explain your answers 2. Suppose there are only 3 stocks in the economy A, B and C. We are given two prtfolios P and P2: P = (0.4, 0.2, 0.4) P = (0.6, -0.4, 0.8) that are on the frontier. This means that there does not exist a portfolio that has the same expected return with a lower risk level. We are also given that: T = 5%, T2 = 12% 0 = 0.4, 02 = 0.8.01,2 = 0. (a) Find the minimum variance portfolio. (b) Are portfolios P and P2 efficient? Explain. (c) Two portfolios on the frontier are called 'twins' if they share the same risk level. Find the twins of both P and P2 and the expected returns of these portfolios. ( (d) Are the twins that you calculated efficient? Explain your answers
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