Assume two portfolios P and P2 with returns r = 0.03 +0.1f, r2 = 0.0025 +0.025f....

 

Transcribed Image Text:

Assume two portfolios P₁ and P2 with returns r₁ = 0.03 +0.1f, r2 = 0.0025 +0.025f. a. Write an expression that adds/subtracts some combination of P1 and P2 to generate riskless returns, and indicate what the riskless return is (3 marks). b. Assume you have no wealth. How do you obtain these riskless returns by buying/selling P₁ and P2 and/or borrowing from/lending to the bank (2 marks)? Assume two portfolios P₁ and P2 with returns r₁ = 0.03 +0.1f, r2 = 0.0025 +0.025f. a. Write an expression that adds/subtracts some combination of P1 and P2 to generate riskless returns, and indicate what the riskless return is (3 marks). b. Assume you have no wealth. How do you obtain these riskless returns by buying/selling P₁ and P2 and/or borrowing from/lending to the bank (2 marks)?

Answer rating: 100% (QA)

a The expression to generate riskl... View the full answer