PS3 - Finance 100: Problem Set 3 1. You can invest in two...

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

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Finance 100: Problem Set 3 1. You can invest in two different securities with the following characteristics: Security Expected Return Standard Deviation 1 12% 15% 2 20% 45% 1.a Fill in the following table, with w 1 indicating the portfolio weight of asset 1. Enter expected returns of your portfolio in the column labeled Return and, the standard deviation for each of the different correlations in the remaining columns. Portfolio Weight Expected Correlation of Asset 1 ( w 1 ) Return-1-0.5 0.5 1 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1 1.b Plot standard deviation and expected returns of your portfolios against each other. What do you observe? Comment on the pattern and the potential for obtaining benefits from diversification depending on the correlation of your two assets. 1.c What is the minimum variance portfolio in case the two assets are perfectly negatively correlated? 1.d What is the minimum variance portfolio in case the two assets are perfectly positively correlated if you assume that: 1. Asset 2 can be sold short. 2.positively correlated if you assume that: 1....
View Full Document

This document was uploaded on 06/09/2010.

Page1 / 4

PS3 - Finance 100: Problem Set 3 1. You can invest in two...

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

View Full Document Right Arrow Icon
Ask a homework question - tutors are online