efficient%20frontier%20DQ - Session 6: Locating the...

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1 Session 6: Locating the Efficient Frontier A. S1 S2 L1 L2 E(R P ) σ P P8 0.0000 0.1000 0.3000 0.6000 5.5660% 5.0394% P9 0.0000 0.0000 0.3000 0.7000 5.5980% 5.3116% B. S1 S2 L1 L2 E(R P ) σ P EP8 0.0939 0.0000 0.0000 0.9061 5.5790% 5.0394% EP9 0.0030 0.0000 0.0000 0.9970 5.6090% 5.3115% C. Investing in highly correlated assets is like putting money in the same asset. Thus there is little diversification benefit from investing in these assets. Investors are better off diversifying their investments into assets that are not highly correlated. From the following table that shows the correlation coefficients among the four bonds, while bonds in the same maturity group are highly correlated, bonds in different maturity groups are not. Therefore, there is no need to invest in each and every short term bond and each and every long term bonds, just one from each maturity category is sufficient. S1
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This note was uploaded on 06/12/2011 for the course ASB 1001,2522, taught by Professor Nicole during the One '09 term at University of New South Wales.

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efficient%20frontier%20DQ - Session 6: Locating the...

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