Suppose there are three assets with expected rates of return r 1 , = 0.10, r 2
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Suppose there are three assets with expected rates of return r1, = 0.10, r2 = 0.07, r3 = 0.14. Each has a standard deviation of .20, and all pairs have correlation coefficient ρ = .4. There is a constraint that the variance of the portfolio must be less than 0.038.
(a) Find the “theory” value.
(b) Find the value when the weights are constrained to be nonnegative.
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