1. Using the information in the table, compute the structure of the optimal portfolio W when...
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1. Using the information in the table, compute the structure of the optimal portfolio W when there are two risky assets, bond fund and stock fund, as well as one risk free asset. r=0.03. Please note that you need to provide the structure for the optimal risky portfolio P first. Note: The utility function is U = E(r) – ao², where the risk averse parameter a is 2. Bond Stock Covariance Expected Return 0.0045 0.1×0.15 5% 8% = = 0.3 Standard Dev. 0.45% 10% 15% p= E()= (1-w)(.05)+w(.08) Var (r)=(1-w) (.01)+w² (.0225)+2w(1-w)(.0045) -0.03 1. Using the information in the table, compute the structure of the optimal portfolio W when there are two risky assets, bond fund and stock fund, as well as one risk free asset. r=0.03. Please note that you need to provide the structure for the optimal risky portfolio P first. Note: The utility function is U = E(r) – ao², where the risk averse parameter a is 2. Bond Stock Covariance Expected Return 0.0045 0.1×0.15 5% 8% = = 0.3 Standard Dev. 0.45% 10% 15% p= E()= (1-w)(.05)+w(.08) Var (r)=(1-w) (.01)+w² (.0225)+2w(1-w)(.0045) -0.03
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Related Book For
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair
Posted Date:
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