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A market consists of four stocks. The following information is given: Stock 1 : r 1 = 5 % , sigma 1 = 1
A market consists of four stocks. The following information is given:
Stock : rsigma
Stock: rsigma
Stock : rsigma
Stock : rsigma
rho rho rho
Returns of Stock Stock and Stock are independent of each other.
Let P be a portfolio of the three stocks with weights w w w w respectively.
Let denote the risk of such a portfolio.
a Given the information above, write down the expression for
by using the numerical
values of the returns, risks and correlations givenA market consists of four stocks. The following information is given:
Stock :
Stock:
Stock :
Stock :
Returns of Stock Stock and Stock are independent of each other.
Let P be a portfolio of the three stocks with weights respectively.
Let denote the risk of such a portfolio.
a Given the information above, write down the expression for by using the numerical
values of the returns, risks and correlations given.
marks
b Your client wants a portfolio with expected return of and the lowest possible risk.
Write down the Lagrangian needed for the optimization calculation based on the expression
you got in Part a
marks
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