# 07.c - Chapter7 Covariance Portfolios of Two Risky Assets...

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7/16/2011 1 Covariance / Portfolios of Two Risky Assets Chapter 7 Optimal Risky Portfolios -PartI Markowitz Calculations -PartII Diversification / Efficient Frontier - Part III 2 Risky Assets + Risk Free Asset   Er CAL P CAL E r D E P CAL DE Mix CAL D DE f

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7/16/2011 2 2 Risky Assets + Risk Free Asset   Er CAL P r D E P f 2 Risky Assets + Risk Free Asset   CAL P r D E P f
7/16/2011 3 2 Risky Assets + Risk Free Asset   Er CAL P r D E P f 2 Risky Assets + Risk Free Asset (pp. 208 209) Sharpe Ratio (Reward-to-Volatility Ratio)  p f r S Optimal Complete Portfolio           2 22 713 1 DE E D ED D E ER ER C o vR,R w. o ww      p p   2 714 pf p r y. A *** Note that equation (7.13) employs EXCESS RATES OF RETURN, R = r r f

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7/16/2011 4 2 Risky Assets + Risk Free Asset (pp. 208 209) And thus an equation for CAL(P) Er r Use this in the homework assignment.
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07.c - Chapter7 Covariance Portfolios of Two Risky Assets...

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