0.12, Consider two risky assets with the following expected return and risk (the standard derivation of...
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0.12, Consider two risky assets with the following expected return and risk (the standard derivation of the return variance, i.e. a): E(F) = 10%, 01 = E(₂) 16%, and ₂ 0.2. The correlation between the returns is -0.3. There is a mean-variance investor, who wants to create a portfolio with these two assets. (a) (7 points) Can this investor create a portfolio with a risk of 8%? If the investor can, please find the optimal weights on this portfolio and calculate its expected return. If not, please explain why, both graphically and algebraically. (b) (7 points) What is the minimum level of risk that this investor is able to achieve with these two assets? What is the expected return of that portfolio? (c) (6 points) What is the maximum return correlation level such that this investor is able to create a portfolio with a risk of 8%? 0.12, Consider two risky assets with the following expected return and risk (the standard derivation of the return variance, i.e. a): E(F) = 10%, 01 = E(₂) 16%, and ₂ 0.2. The correlation between the returns is -0.3. There is a mean-variance investor, who wants to create a portfolio with these two assets. (a) (7 points) Can this investor create a portfolio with a risk of 8%? If the investor can, please find the optimal weights on this portfolio and calculate its expected return. If not, please explain why, both graphically and algebraically. (b) (7 points) What is the minimum level of risk that this investor is able to achieve with these two assets? What is the expected return of that portfolio? (c) (6 points) What is the maximum return correlation level such that this investor is able to create a portfolio with a risk of 8%?
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This investor cannot create a portfolio with a risk of 8 Let w1 be the weight on asset 1 and w... View the full answer
Related Book For
Elementary Statistics in Social Research Essentials
ISBN: 9780205638000
3rd edition
Authors: Jack A. Levin, James Alan Fox
Posted Date:
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