Answer note that the reward to variability ratio

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Answer: Note that the reward-to-variability ratio associated to portfolio q is . 10 - . 06 . 10 = . 4, which is higher than the reward-to-variability ratio associated to portfolio p . Hence assuming that we cannot mix p and q together, any risky investment should be made in portfolio q . The fraction of the optimal portfolio invested in p is therefore 0 and the fraction invested in q is E [ r q ] - r f 2 q = . 10 - . 06 . 01 A = 4 A . 7
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  • Spring '12
  • Scott
  • Closed-end fund, margin purchase

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