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More Q_A on the Midterm

# More Q_A on the Midterm - A Yes you most certainly can Q...

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H AAS S CHOOL OF B USINESS UGBA 103 U NIVERSITY OF C ALIFORNIA AT B ERKELEY A VINASH V ERMA More Q&A on the Midterm Q: For question #8, you mention that we want to "form a portfolio of these two securities such that it has the minimum possible risk as measured by the portfolio standard deviation." The equation for minimizing risk in a portfolio given to us in the notes is based on minimizing the portfolio variance. Does this mean that we would need to minimize the portfolio SD by taking derivatives and such to get an equation that minimizes risk =based on portfolio SD? Or could we use the given equation in the notes and still come up with the same answer? A Minimizing the risk as measured by the portfolio variance is the same as minimizing the risk as measured by the portfolio standard deviation, and you can indeed use the equation in the notes. Q: I would like to know if i can give you the midterm back on a separate sheet of paper, instead of using the 9 pages Word file you send us ?
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Unformatted text preview: A Yes, you most certainly can. Q: NO.1 In Problem7, it is mentioned&amp;quot; the smallest corelation&amp;quot;, I wannna ask that does the &amp;quot;smallest correlation&amp;quot; mean the rho12 of the two securities is -1, although I think the RHO12 should and could only be -1 because it can be risk free only on the occation that RHO12=-1? I just wannna confirm my thinking. A We saw in class that RHO12 must be greater than or equal to 1 and less than or equal to +1. Given the range from 1 to +1, it should be easy for you to decide what is the smallest value RHO12 can take. Q: IN PROBLEM8, it asked us to calculate the expected value of the portfolio next year, but I think we cannot get the expected value because we have not been told the present value of the portfolio. Could we assume that the present value is 1000? A: If you re read the question carefully, you will find that you have all the information that you need to answer the question....
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