H14 - p 2 = ij subject to constraints that x i = 1 and E p...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: p 2 = ij subject to constraints that x i = 1 and E p = 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...
View Full Document

Ask a homework question - tutors are online