There are two assets A and B whose returns are jointly normally distributed. The expected return...

 

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There are two assets A and B whose returns are jointly normally distributed. The expected return on A, TA = 0.5, the standard deviation σA = 0.3, the expected return on B, r³ = 0.7, the standard deviation OB 0.5, and the correlation coefficient, PAB = -0.5. = a. Determine the expected return on a portfolio that assigns weight w on asset A and weight (1- w) on asset B. b. Determine the variance of the returns on a portfolio that assigns weight w on asset A and weight (1-w) on asset B. c. Determine weight w that minimises the variance of the portfolio in (b). Find the expected return and standard deviation associated with this w. There are two assets A and B whose returns are jointly normally distributed. The expected return on A, TA = 0.5, the standard deviation σA = 0.3, the expected return on B, r³ = 0.7, the standard deviation OB 0.5, and the correlation coefficient, PAB = -0.5. = a. Determine the expected return on a portfolio that assigns weight w on asset A and weight (1- w) on asset B. b. Determine the variance of the returns on a portfolio that assigns weight w on asset A and weight (1-w) on asset B. c. Determine weight w that minimises the variance of the portfolio in (b). Find the expected return and standard deviation associated with this w.

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To solve this problem we can use the following formulas a The expected return on a portfolio is give... View the full answer