There are two risky assets. The first has expected return F = 0.1 and return volatility...

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There are two risky assets. The first has expected return F₁ = 0.1 and return volatility ₁ = 0.3, while the second has expected return F₂ = 0.2 and return volatility ₂0.5. The correlation of returns is P12 = 0.2. Lastly, you can also invest in the risk-free asset which has return rf = 0.05. (a) Identify the market (i.e. maximum excess Sharpe ratio) portfolio. (b) Identify the portfolio which gives the minimum variance for a target expected return of = 0.2. There are two risky assets. The first has expected return F₁ = 0.1 and return volatility ₁ = 0.3, while the second has expected return F₂ = 0.2 and return volatility ₂0.5. The correlation of returns is P12 = 0.2. Lastly, you can also invest in the risk-free asset which has return rf = 0.05. (a) Identify the market (i.e. maximum excess Sharpe ratio) portfolio. (b) Identify the portfolio which gives the minimum variance for a target expected return of = 0.2.

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a The market portfolio is the portfolio that maximizes the excess Sharpe ratio which is the differen... View the full answer