Question: The average returns for two assets A and B are .023 and .021, respectively. The return to risk-free asset is .008. The variance-covariance matrix of

The average returns for two assets A and B are .023 and .021, respectively. The return to risk-free asset is .008. The variance-covariance matrix of the two assets is:

.0072
.0023	.0049

The average returns for two assets A and B are .023 and .021, respectively. The return to risk-free asset is .008. The variance-covariance matrix of the two assets is:

a. Construct the portfolio possibilities curve (efficient frontier) by assuming no short sales and by minimizing the risk of the portfolio (GMV).

b. Construct the portfolio possibilities curve assuming that short sale is allowed.

c. Graph the two curves together distinguishing them with different colors.

d. Graph CAL and find the point of tangency.

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