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E120_SUM11_HW6

# E120_SUM11_HW6 - E120 Homework 6 Due Problem 1 Suppose that...

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E120 Homework 6 Due 08/12/2011 Problem 1: Suppose that there are 2 assets with r 1 = 0 . 20 , σ 1 = 0 . 40 , r 2 = 0 . 10 , σ 2 = 0 . 25 , σ 12 = 0 . 05. 1. If r f = 0 . 02, what are the market portfolio return and variance? What are the corresponding weights? 2. If r f = 0 . 05, what are the market portfolio return and variance? What are the corresponding weights? Problem 2: Suppose the risk-free asset has expected return of 0 . 05, and the market portfolio has ex- pected return 0 . 15 and standard deviation 0 . 18. What is the minimum standard deviation you can achieve if you desire an expected return of 10%? Problem 3: Suppose the risk-free asset has expected return of 0 . 05, and the market portfolio has expected return 0 . 15 and standard deviation 0 . 18. Is it possible for you to achieve an expected return of 20% and a standard deviation of 20%? Why, or why not? Problem 4: Assume that the expected rate of return on the market portfolio is 23% and the rate of return on T-bills (the risk-free rate) is 7%. The standard deviation of the market is 32%.

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E120_SUM11_HW6 - E120 Homework 6 Due Problem 1 Suppose that...

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