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Unformatted text preview: Special ρ B B A A p B B A A W W r E W r E W r E σ + = + = ) ( ) ( ) ( p 7 Minimum Variance Portfolio (with 2 risky assets) ( 29 A W B W B A B A B A B A B A B A W=+= 1 , 2 2 2 , 2 ρ σ 8 What if a riskfree asset is available in addition to the risky assets? • The feasible set of portfolios becomes more attractive ( Why? ) • There is an optimal risky portfolio which dominates all other risky portfolios (irrespective of risk preferences) • The optimal (tangency) portfolio has the highest Sharpe ratio among all feasible portfolios 9 Optimal risky portfolio in presence of a riskfree asset Standard Deviation Expected Return Riskfree C B A CAL for Portfolio C CAL for Portfolio B CAL for Portfolio A Optimal CAL has the steepest slope....
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 Spring '09
 TongYao
 Management, Standard Deviation, risky assets, wA

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