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(i)
The objective function is to minimize the risk of portfolio at a given
expected return of 20% p.a. The risk of portfolio is minimized by changing
the composition of the portfolio, subject to the constraints that the weights
must add up to one, the individual weights must be greater than or equal to
zero and the expected rate of return of portfolio must be twenty percent.
(ii) The composition of the minimum variance portfolio:
Asset weight
BHP
CBA
RIO
WBC
QBE
w
i
0.0060
0.1133
0.0000
0.0313
0.0000
TLS
WES
ANZ
NAB
QAN
0.0988
0.1419
0.0578
0.0000
0.0000
WDC
LGL
WOW
WPL
MQG
0.0000
0.0215
0.3052
0.0270
0.0077
AOE
CSL
STO
BXB
FMG
0.0031
0.1505
0.0000
0.0359
0.0000
(iii)
Portfolio risk return
combination
E(R
P
)
σ
P
20.0000
%
14.65
38%
(iv) If short selling is allowed, the constraint that the weight of individual assets
must be greater than or equal to zero should be removed as the individual
weights can be negative.
Question 2
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 Three '10
 HneryYip

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