In a hypothetical world of 4 assets with the following information below. Assume no restrictions on short
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In a hypothetical world of 4 assets with the following information below. Assume no restrictions on short sales.
Variance-covariance matrix | Asset 1 | Asset 2 | Asset 3 | Asset 4 |
| Expected returns |
Asset 1 | 0.10 |
|
|
|
| 0.06 |
Asset 2 | 0.02 | 0.20 |
|
|
| 0.07 |
Asset 3 | 0.04 | 0.04 | 0.40 |
|
| 0.08 |
Asset 4 | 0.05 | 0.01 | 0.10 | 0.60 |
| 0.09 |
- Find the portfolio weights for the minimum risk premium portfolio using the four assets.
- Identify five new efficient portfolios and use a table to report their portfolio weights, portfolio returns, and standard deviations. Draw an efficient frontier diagram on the plane of return-standard deviation, using the six efficient portfolios identified.
- Suppose a portfolio is composed of equal weights of each asset (i.e., [0.25, 0.25, 0.25, 0.25]). Is the portfolio efficient? Support your answer with the results of your calculations.
Related Book For
Fundamentals of Investments, Valuation and Management
ISBN: 978-1259720697
8th edition
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin
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