Suppose there is no riskless asset and we have three stocks: A, B and C. Their...

 

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Suppose there is no riskless asset and we have three stocks: A, B and C. Their expected returns are given by 10% r = 20% 30% The covariance matrix is 1 0 0 V = 0 1 0 0 0 1 (a) Let p be a portfolio on the minimum-variance frontier (MVF). Write the return standard deviation of p, p, as a function of its expected return rp. (b) Using the result you obtained from part (a), plot the MVF. (c) Find the global minimum-variance portfolio GMV. (d) Label the minimum-variance portfolio p' with E[rp'] = 25% on the MVF you draw in part (b). (e) Find a portfolio p" on the MVF which is uncorrelated with p' and label it on the plot you draw in part (b). p" is called the zero-beta portfolio for p'. (f) Now draw a straight line that passes through (0,rp") and (p', Tp). What do you find? Suppose there is no riskless asset and we have three stocks: A, B and C. Their expected returns are given by 10% r = 20% 30% The covariance matrix is 1 0 0 V = 0 1 0 0 0 1 (a) Let p be a portfolio on the minimum-variance frontier (MVF). Write the return standard deviation of p, p, as a function of its expected return rp. (b) Using the result you obtained from part (a), plot the MVF. (c) Find the global minimum-variance portfolio GMV. (d) Label the minimum-variance portfolio p' with E[rp'] = 25% on the MVF you draw in part (b). (e) Find a portfolio p" on the MVF which is uncorrelated with p' and label it on the plot you draw in part (b). p" is called the zero-beta portfolio for p'. (f) Now draw a straight line that passes through (0,rp") and (p', Tp). What do you find?