In Table 9.2, suppose the variance of the two assets are incorrectly estimated to be .044 instead of the actual .04 (which is a 10% error). Find the “think” value for the tangent of the angle of the capital market line.

Transcribed Image Text:

TABLE 9.2 THREE VIEWS Think+ Think- Theory Actual + Actual- - 59 u1 0.11 0.11 0.11 0.11 0.11 u2 0.06 0.06 0.06 0.06 0.06 e 0.02 -0.02 0 0.02 -0.02 rho 0.7 0.7 0.7 0.7 0.7 w1 1.5439 1.0667 1.3333 1.5439 1.0667 w2 -0.5439 -0.0667 -0.3333 -0.5439 -0.0667 rbar 0.1681 0.0920 0.1267 0.1372 0.1133 sigma^2 0.0602 0.0417 0.0507 0.0602 0.0417 Tangent 0.6853 0.4505 0.5627 0.5594 0.5550 Delta 0.1225 -0.1122 0.0000 -0.0033 -0.0078 Average Delta 0.0052 -0.0056 Theta 34.42 24.25 29.37 29.22 29.03