Returns of all assets in the economy are exposed to two risk factors, f1 and f2....
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Returns of all assets in the economy are exposed to two risk factors, f1 and f2. Both factors have mean zero, i.e. E[ƒ1] = E[ƒ2] = 0. You are able to trade in three well- diversified portfolios whose returns are given by rA = 0.03 +2f1-2f2 rB = 0.03 - f1 +2f2 rc = 0.10 +3f1 You are also able to buy or sell up to $1000 a risk-free asset with a return of 3%. a) A risk-free portfolio of A, B, and C has weights of WA = , and wc =-1/5. , WB = b) The expected return of the risk-free ABC portfolio equals c) To exploit the existing arbitrage opportunity, you should short the replicating portfolio, which involves a short position of $ in portfolio A. %. olo Returns of all assets in the economy are exposed to two risk factors, f1 and f2. Both factors have mean zero, i.e. E[ƒ1] = E[ƒ2] = 0. You are able to trade in three well- diversified portfolios whose returns are given by rA = 0.03 +2f1-2f2 rB = 0.03 - f1 +2f2 rc = 0.10 +3f1 You are also able to buy or sell up to $1000 a risk-free asset with a return of 3%. a) A risk-free portfolio of A, B, and C has weights of WA = , and wc =-1/5. , WB = b) The expected return of the risk-free ABC portfolio equals c) To exploit the existing arbitrage opportunity, you should short the replicating portfolio, which involves a short position of $ in portfolio A. %. olo
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Solving the Portfolio Problem a Riskfree portfolio weights For a riskfree portfolio the expected ret... View the full answer
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
Posted Date:
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