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# H14 - σ p 2 = ΣΣσ ij subject to constraints that Σ x i...

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H AAS S CHOOL OF B USINESS U NIVERSITY OF C ALIFORNIA AT B ERKELEY BA 103 A VINASH V ERMA H OMEWORK 14 (O PTIONAL ): D UE A UGUST 11, 2011 (5 points of extra credit) The table below lists the expected return and the standard deviation of returns on five securities: Securi ty Expected Return SD(Retur n) 1 10% 5% 2 15% 25% 3 20% 30% 4 30% 35% 5 45% 39% The correlation matrix, CORR( R i , R j ), for various values of i and j as follows: 1 2 3 4 5 1 1 0.0 2 0. 3 -0.1 0.5 2 0.0 2 1 0 -0.2 0.2 7 3 0.3 0 1 0 0.6 4 -0.1 -0.2 0 1 0.3 6 5 0.5 0.2 7 0. 6 0.3 6 1 Compute the variance-covariance matrix, COV( R i , R j ), for various values of i and j and use Solver add-in in MS Excel to choose x i and x j so as to minimize
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Unformatted text preview: σ p 2 = ΣΣσ ij subject to constraints that Σ x i = 1 and E p = Σ x i E i = 1%. Note in a separate table values of E p and, from the minimized portfolio variance, compute the minimized portfolio standard deviation, p . Now, compute p by changing the value of E p from 1% to 51% in steps of 5%. Plot these points in Excel to generate the minimum variance frontier. Print the table and the minimum variance frontier, and submit it by August 11. Homework 14 1...
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