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as372w10a3soln

# as372w10a3soln - Assignment#3 Solution W10 Actsc 372 1(a...

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Assignment #3 Solution W10 Actsc 372 1. (a) Here are the additional assumptions for the calculations: TSX RIM RY Rogers MFC Monthly Expected Return 0.29% 2.68% 1.37% 0.76% 1.26% Variance/Covariance Matrix TSX RIM RY Rogers MFC TSX 0.22% 0.46% 0.10% 0.20% 0.19% RIM 0.46% 3.95% 0.13% 0.67% 0.45% RY 0.10% 0.13% 0.30% 0.07% 0.26% Rogers 0.20% 0.67% 0.07% 0.85% 0.11% MFC 0.19% 0.45% 0.26% 0.11% 0.89% (b) μ σ 2 σ TSX RIM RY Rogers MFC Markowitz models (with short selling) MinVar: 0.53% 0.16% 4.06% 69.04% -5.45% 35.93% 4.94% -4.45% 1.00% 0.2% 4.42% 30.86% 0.92% 62.14% 8.47% -2.39% 2.00% 0.47% 6.84% -50.21% 14.44% 117.80% 15.98% 1.99% 3.00% 1.02% 10.10% -131.28% 27.96% 173.46% 23.48% 6.37% (c) With short-selling constraint, the expected return of 2% per month can be at- tained by exposing the portfolio to a standard deviation of 10.31%, which is substantially higher than 6.84%, without the short-selling constraint. The cor- responding weights for TSX, RIM, RY, Rogers, and MFC are 0.00%, 48.22%, 51.78%, 0.00%, and 0.00%. In other words, only invest in RIM and RY stocks. (d) With short-selling constraint, it is not possible to construct a portfolio with 3% expected return since the highest expected return is 2.68%, by investing 100% in RIM.

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as372w10a3soln - Assignment#3 Solution W10 Actsc 372 1(a...

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