Suppose that there are only two assets, namely X and Y, in an imaginary market and...
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Suppose that there are only two assets, namely X and Y, in an imaginary market and there is no risk-free asset. The expected return and volatility of the two assets and the market portfolio (M) is given in the table below. Asset X Asset Y Market portfolio (M) Expected return 3% 5% Volatility 6% 8% 4% 5% (a) (4 points) Show that the returns on asset X and asset Y are uncorrelated. (b) (i) (3 points) Determine the global minimum variance portfolio (denoted by S). (ii) (3 points) Find the expected return (s) and volatility (s) of portfolio S. (c) Suppose a zero-beta CAPM (with Z being the zero-beta portfolio) is valid such that Mi = z + Bi(m - z) where Bi = = Cov(Ri, RM) (i) (3 points) Without solving for x and By, determine the zero-beta portfolio Z. (ii) (3 points) Find the expected return (z) and volatility (z) of portfolio Z. (iii) (3 points) Use the results of part (c) (ii) to determine the values of x and By. (iv) (3 points) Explain whether portfolio Z is efficient. Suppose that there are only two assets, namely X and Y, in an imaginary market and there is no risk-free asset. The expected return and volatility of the two assets and the market portfolio (M) is given in the table below. Asset X Asset Y Market portfolio (M) Expected return 3% 5% Volatility 6% 8% 4% 5% (a) (4 points) Show that the returns on asset X and asset Y are uncorrelated. (b) (i) (3 points) Determine the global minimum variance portfolio (denoted by S). (ii) (3 points) Find the expected return (s) and volatility (s) of portfolio S. (c) Suppose a zero-beta CAPM (with Z being the zero-beta portfolio) is valid such that Mi = z + Bi(m - z) where Bi = = Cov(Ri, RM) (i) (3 points) Without solving for x and By, determine the zero-beta portfolio Z. (ii) (3 points) Find the expected return (z) and volatility (z) of portfolio Z. (iii) (3 points) Use the results of part (c) (ii) to determine the values of x and By. (iv) (3 points) Explain whether portfolio Z is efficient.
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Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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