Consider a portfolio with three assets E[rA]=10%E[rB]=15%E[rC]=8%A2 =0.008B2 =0.010C2 =0.020A,B =0 B,C = 0.5 A,C = 0.2

Consider a portfolio with three assets

E[rA]=10%E[rB]=15%E[rC]=8%σA2 =0.008σB2 =0.010σC2 =0.020ρA,B =0

ρB,C = 0.5 ρA,C = −0.2

a) Consider the portfolio weights xA = 0.4 and xB = 0.4. Calculate the portfolio weight xC, the expected portfolio return, and the variance of the portfolio returns.

b) Consider the portfolio weights xA = 0.4. Calculate the expected portfolio return as a function of xB

c) Consider the portfolio weights xA = 0.4. Calculate the portfolio return variance as a function of xB

d) Calculate the portfolio which has the smallest variance, for which xC = 0.2.

Answer rating: 100% (QA)

a Weight of security C is 02 Expected portfolio return is 116 Portfolio return variance is 000010368 ... View the full answer