Consider an economy with two risky assets A and B. The expected returns are =...
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Consider an economy with two risky assets A and B. The expected returns are µÃ = 0.20 and B = 0.10. The variance-covariance matrix is: Σ = 0.090 0.018 0.018 0.01 (a) What is the composition of the minimum variance portfolio, its expected return and the standard deviation of its rate of return? (b) Represent the minimum variance portfolio and the set of portfolios you can obtain with the two risky assets in (o, u) - space. On the same graph clearly indicate the region where you have to short sell asset A and the region where you have to short sell asset B. (c) Now, suppose that a risk-free asset F with return of r = 0.03 is introduced in this economy, so the total set of assets available is now (A, B, F). Suppose that the expected return and the standard deviation of the tangency portfolio are μ = 0.112 and or= 0.113, respectively. What is the composition of the tangency portfolio? Represent the Capital Market Line (CML) and the tangency portfolio in your graph. T Consider an economy with two risky assets A and B. The expected returns are µÃ = 0.20 and B = 0.10. The variance-covariance matrix is: Σ = 0.090 0.018 0.018 0.01 (a) What is the composition of the minimum variance portfolio, its expected return and the standard deviation of its rate of return? (b) Represent the minimum variance portfolio and the set of portfolios you can obtain with the two risky assets in (o, u) - space. On the same graph clearly indicate the region where you have to short sell asset A and the region where you have to short sell asset B. (c) Now, suppose that a risk-free asset F with return of r = 0.03 is introduced in this economy, so the total set of assets available is now (A, B, F). Suppose that the expected return and the standard deviation of the tangency portfolio are μ = 0.112 and or= 0.113, respectively. What is the composition of the tangency portfolio? Represent the Capital Market Line (CML) and the tangency portfolio in your graph. T
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