A2.pdf - Winter 2019 ACTSC 372 Assignment#2 1 Assume we have 2 securities A and B with expected returns = 7 = 10 and volatilities = 7 = 15 and the

# A2.pdf - Winter 2019 ACTSC 372 Assignment#2 1 Assume we...

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Winter 2019 ACTSC 372 Assignment #2 1. Assume we have 2 securities, A and B, with expected returns 𝜇 ? = 7%, 𝜇 ? = 10% and volatilities 𝜎 ? = 7%, 𝜎 ? = 15% and the correlation of the returns are 𝜌 = 20%. a. Find the minimum variance portfolio. b. Sketch the efficient frontier for these securities. Show where the portfolio you found in part (a), along with the securities A and B appear in the graph.

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Winter 2019 ACTSC 372 Assignment #2 2. Suppose M is the market portfolio, and 𝜇 𝑀 = 10%, 𝜎 𝑀 = 15%, 𝑟 𝑓 = 2%. Suppose Q is another portfolio with 𝜇 𝑄 = 12%, 𝜎 𝑄 = 25%. a. Calculate the Sharpe Ratio of both M and Q. Is Q on, below or above the CML?
• Winter '09
• MARYHARDY

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