Midterm-II-Solutions

Midterm-II-Solutions - A.Sobrabian Solution to Exam II Econ...

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Unformatted text preview: A.Sobrabian Solution to Exam II Econ 132A Winter 2008 If two securities were perfectly negatively correlated, the weights for the minimum variance portfolio for those securities could be calculated, and the standard deviation of the resulting portfolio would be zero. Rationale: When plotting the above portfolios, only W lies below the efficient frontier as described by Markowitz. It has a higher standard deviation than Z with a lower expected return. wA = 12/(16 + 12) = 0.4286; wB = I - 0.4286 = 0.5714. E(R p ) = 0.43(10%) + 0.57(8%) = 8.86%. 5. 1.b. B 0.20 = x(0.40); x 50% in risky asset. b'').?' l) 11% w j (17%) + (l - w l )(4%); 11% = 17%w I + 4% - 4%w ; 7% = 13%w ; wI = 0.538; 1- wI O. l l n 461; 0.538(17%) + 0.462(4%) = 11.0%. 1 ~B' (0.17 - 0.04)/0.40 = 0.325. A 8. J (> 0.06 = 0.15 - A/2(0.15)2; 0.06 - 0.15 =-A/2(0.0225); -0.09 =-0.01125A; A = 8; U = 0.15 - 8/2(0.15)2 o = 6%; U(R ) = 6%. f E(RC) == 0.30(7%) + 0.5(11%) + 0.20(-16%) == 4.4%; E(RD) == 0.30(-9%) + 0.5(14%) + 0.20(26%) == q. /4 9.5%. ;J sc == [0.30(7% - 4.4%)2 + 0.5(11 % - 4.4%)2 + 0.20(-16% - 4.4%)2 J 1/2 == 9.34%; s == [0.30(-9% - 9. 5%)2 + 0.50(14% - 9.5%)2 +0.20(26% _9.5%)2 J I/2 == 12.93%. D l' Jb ' C- covC,D == 0.30(7% _4.4%)(-9% - 9.5%) + 0.50(11% - 4.4%)(14% - 9.5%) + 0.20(-16% - 4.4%)(26% _9.5%) == 2.40; rA,B == -66.90/[(9.34)(12.93)] == -0.554 ( v/('J ,~. n E(R ) ~ 0.25(4.4%) + 0.75(9.5%) 0....
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This note was uploaded on 02/04/2009 for the course ECON 132a taught by Professor Sohrab during the Spring '09 term at UC Irvine.

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Midterm-II-Solutions - A.Sobrabian Solution to Exam II Econ...

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