{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Midterm-II-Solutions

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

This preview shows pages 1–3. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

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....
View Full Document

{[ snackBarMessage ]}

### Page1 / 5

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

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online