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Economics 252 Problem Set #2
1. Suppose the typical technology stock has a return standard deviation of 50% per year. Suppose that all technology
stocks are independent of each other. Suppose that the typical bluechip stock has a return standard deviation of 10% per
year. Then, how many different technology stocks would I have to include in an equally weighted portfolio to make the
tech stock portfolio safer (in terms of standard deviation) than holding a single bluechip stock?
2. Stock A has a return standard deviation of 20% and stock B has a return standard deviation of 10%. Stock A has an
expected return of 20% and stock B has an expected return of 10%.?
Plot the efficient portfolio frontier under the assumption that the two stocks? returns are uncorrelated with
each other. Show points A and B on the plot. (For these plots, it would probably be easiest to use a
spreadsheet to print the plots.)
a.
Show on the plot the minimum variance portfolio. Does it contain positive quantities of both A and B?
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This note was uploaded on 02/08/2012 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.
 Spring '08
 RobertShiller
 Economics

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