Consider the following data: Assets E(r) A B C 0 0.05 0.10 0.10 0.20 0.15 0.30...
Fantastic news! We've Found the answer you've been seeking!
Question:
![](https://dsd5zvtm8ll6.cloudfront.net/si.experts.images/questions/2023/03/6402f3cf065b0_1677915086559.png)
Transcribed Image Text:
Consider the following data: Assets E(r) A B C 0 0.05 0.10 0.10 0.20 0.15 0.30 The risk-free rate is r = 0.035. The correlation matrix for the assets is given by: Correlation matrix: (for risky assets) A 1 B 0 1 0.5 0.5 1 A B C Solver (in Excel) yields two portfolios on the minimum variance frontier: * Global minimum variance (GMV) portfolio: Wa=0.287 0 0.5 0.5 WA=0.887 E[MV] -0.047 OMV 0.079 (MV-minimum variance) * A portfolio with expected return = 0.10; we will denote it by r. (Portfolio 1) WA = 0.294 Wa=0.412 Wc = 0.294 E[r] -0.10 0-0.159 For this set of data: We=-0.174 a) Calculate the covariance of the GMV portfolio with portfolio 1. Hint: The covariance between two portfolios is an extension of the covariance formulas in class. Suppose there are 3 assets (r, with i=1, 2, and 3). Let portfolio i have weights w, i 1, 2, 3 in each asset. Let portfolio j have weights w, j-1, 2, 3 in each asset. The covariance of portfolio i and portfolio j is given by: cov(n,r) w: Wi var(n)+wi w cov(n,r) + w ws cov(ri,rs)+W2 W cov(n,r) + W W var(r) + W W3 Cov(3) + W W (,) + W3 W2 Cov(rn) + WW var(r) Consider the following data: Assets E(r) A B C 0 0.05 0.10 0.10 0.20 0.15 0.30 The risk-free rate is r = 0.035. The correlation matrix for the assets is given by: Correlation matrix: (for risky assets) A 1 B 0 1 0.5 0.5 1 A B C Solver (in Excel) yields two portfolios on the minimum variance frontier: * Global minimum variance (GMV) portfolio: Wa=0.287 0 0.5 0.5 WA=0.887 E[MV] -0.047 OMV 0.079 (MV-minimum variance) * A portfolio with expected return = 0.10; we will denote it by r. (Portfolio 1) WA = 0.294 Wa=0.412 Wc = 0.294 E[r] -0.10 0-0.159 For this set of data: We=-0.174 a) Calculate the covariance of the GMV portfolio with portfolio 1. Hint: The covariance between two portfolios is an extension of the covariance formulas in class. Suppose there are 3 assets (r, with i=1, 2, and 3). Let portfolio i have weights w, i 1, 2, 3 in each asset. Let portfolio j have weights w, j-1, 2, 3 in each asset. The covariance of portfolio i and portfolio j is given by: cov(n,r) w: Wi var(n)+wi w cov(n,r) + w ws cov(ri,rs)+W2 W cov(n,r) + W W var(r) + W W3 Cov(3) + W W (,) + W3 W2 Cov(rn) + WW var(r)
Expert Answer:
Answer rating: 100% (QA)
To calculate the covariance between the GMV portfolio and Portfolio 1 we need the weights and covari... View the full answer
Related Book For
Understanding Basic Statistics
ISBN: 9781111827021
6th Edition
Authors: Charles Henry Brase, Corrinne Pellillo Brase
Posted Date:
Students also viewed these mathematics questions
-
Consider the following data for three different companies: The patterns of cash flows for these firms differ. One firm is a growth firm that is expanding rapidly, another firm is in danger of...
-
The Swiss risk free rate is 7.15%. If the Swiss national market return has a mean of 11% and a standard deviation was 24.4%, what is the ex-post return/risk performance of the market?
-
Consider the following data regarding factory overhead: Using the above data, fill in the following blanks with the variance amounts. Use F for favorable or U for unfavorable for eachvariance. Total...
-
QUESTION 2 A non-symmetrical rigid jointed portal frame ABCD is fixed at A and D. It carries a trapezoidal distributed load acts along beam BC as illustrated in Figure Q2. The frame was constructed...
-
In the cathode-ray tube shown, electrons emitted by the cathode and attracted by the anode pass through a small hole in the anode and then travel in a straight line with a speed v0 until they strike...
-
Why has recycling become more popular and widespread? What are some of the issues hindering businesses and organizations from offering further recycling services? What are some of the solutions...
-
A businesss provision for doubtful debts was 900 on 31 December 2005. During the year ended 31 December 2006, the business received 200 from a trade debtor towards the settlement of a debt of 565...
-
Selzer & Hollinger, a low-cost legal ï¬rm, has set time standards for each of the two basic legal services it offers, which include the following: Over the past month, Selzer & Hollinger has...
-
Loach Corp. had the following inventory data: Previous question Date Quantity Unit Cost July 1 Beginning inventory 5 $55 July 4 Purchase 10 $54 July 7 Sale 12 July 11 July 14 Purchase Sale 9 B $59...
-
Claude Lopez is the president of Zebra Antiques. His employee, Dwight Francis, is due a raise. Dwight?s current benefits analysis is as follows: Company Cost (Current) Yearly Benefit Costs Employee...
-
8 years ago, a new machine cost $8 million to purchase. The machine was to be linearly depreciated to zero over 10 years. Part 1 What is the annual depreciation (in $)?
-
Large rating agencies (RAs), Such as Standard & Poor's, have come under increasing criticism in recent years for a multitude of reasons.Here are just a few. First, the RAs are too cozy with the...
-
3 The total force (in N) on the circular end of a water tank is F = 18,600 Sy9-y dy. Evaluate F. 0
-
What are the Examples of social control can be found in all walks of life. Discuss
-
1.Consider a stock selling for $23 that is expected to increase in price to $27 by the end of the year and pay a $0,50 dividend. If the risk-free rate is 4%, the expected return on the market is...
-
Today the transistors in integrated circuits that act like switches ( on / off ) have replaced Group of answer choices a. Leyden jars b. cathode ray tubes ( CRT ) c. capacitors d. electroscopes
-
Step Instructions Points Possible period) 24 You want to add sparklines to the Daily Attendance Trends. You add 7 high points to emphasize which time of day is the most popular for your membership....
-
Quadrilateral EFGH is a kite. Find mG. E H <105 G 50 F
-
Let z be a random variable with a standard normal distribution. Find the indicated probability and shade the corresponding area under the standard normal curve. P(0 z 1.62)
-
A stationery store has decided to accept a large shipment of ball-point pens if an inspection of 20 randomly selected pens yields no more than two defective pens. (a) Find the probability that this...
-
A random sample of 49 measurements from one population had a sample mean of 10, with sample standard deviation 3. An independent random sample of 64 measurements from a second population had a sample...
-
The accounting rate of return on the initial investment presented in question 4 is: a. 0.125 b. 0.156 C. 0.219 d. 0.375
-
For a typical \($120,000\) investment in equipment with a 5-year life and no salvage value, determine the present value of the tax shield using straight-line depreciation. Assume an income tax rate...
-
Each of the following statements is true regarding capital budgeting decisions, except: a. Capital expenditure proposals involve risk. b. Acommon error is to invest in unnecessary or overly complex...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App