CHAPTER 6 OPTIMAL RISKY PORTFOLIOS (a) for sure. (b) and (d) argon firm-specific. (c) and (e) can be some(prenominal) firm-specific or due to market-wide factors. (a) and (c) see into the portfolio variance and thus turn portfolio risk. (a) is true by definition. (b) is in like manner true: see for gaucherie the example in framing 6.15. (c) is false, since it cannot be the tangency portfolio. (d) may also be false. 4.The parameters of the opportunity set are: E(rS) = 20%, E(rB) = 12%, ?S = 30%, ?B = 15%, ? .10 From the pinion deviations and the correlation coefficient we generate the covariance matrix [note that Cov(rS,rB) = ??S?B]: Bonds Stocks Bonds 225 45 Stocks 45 900 The negligible-variance portfolio is ground by applying the formula: wMin(S) = = = .1739 wMin(B) = .8261 The borderline variance portfolio mean and tax deviation are: E(rMin) = .1739 × 20 + .8261 × 12 13.39% ?Min = [W?+ W?+ 2WSWBCov(S,B)]1/2 = [.17392 × 900 + .82612 × 225 + 2 × .1739 × .8261 × 45]1/2 = 13.92% 5. |% in stocks |% in bonds |Exp. return |Std. Dev | | |0.00% |100.00% |12.00 |15.00 | | |17.39% |82.61% |13.
39 |13.92 | negligible variance | |20.00% |80.00% |13.60 |13.94 | | |40.00% |60.00% |15.20 |15.70 | | |45.16% |54.84% |15.61 |16.54 |tangency portfolio | |60.00%...If you postulate to get a encompassing essay, order it on our website:
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