State Prob. Return Stock A Return Stock B Return Stock C Recession 0.3 -0.04 0.06 0.6 Normal
Fantastic news! We've Found the answer you've been seeking!
Question:
State | Prob. | Return Stock A | Return Stock B | Return Stock C |
Recession | 0.3 | -0.04 | 0.06 | 0.6 |
Normal | 0.5 | 0.05 | 0.07 | 0 |
Boom | 0.2 | 0.2 | 0.06 | -0.3 |
a) What are the portfolio weights (xA, xB, xC )? Are your positions in stocks A, B, and C long (you buy) or short (you short-sell)? Justify.
b) What is the expected return of the portfolio (¯rP )?
c) What is the volatility of the portfolio (σP )?
We now want to draw the efficient frontier and obtain the minimum variance portfolio. Note that you can use a solver (Excel, matlab, R, ...) if you want.
d) You want to build an efficient portfolio with an expected return of 14%. What are the weights of this portfolio (xA, xB, xC )? Are your positions in stocks A, B, and C long (you buy) or short (you short-sell)? Justify. What is the volatility of this portfolio (σP )?
Related Book For
Business Law and the Legal Environment
ISBN: 978-1285860381
7th edition
Authors: Susan S. Samuelson, Jeffrey F. Beatty
Posted Date: