Question
Assume the risk-free rate is 1%. The following table shows returns and variance-covariance for five stocks. Returns% Var-Cov IT ENG FIN HLT CDS IT 4.559
Assume the risk-free rate is 1%. The following table shows returns and variance-covariance for five stocks.
|
| Returns% |
| Var-Cov | IT | ENG | FIN | HLT | CDS |
| IT | 4.559 |
| IT | 8.129 | 7.182 | 7.171 | 3.585 | 7.041 |
| ENG | 7.187 |
| ENG | 7.182 | 10.228 | 8.528 | 4.351 | 7.457 |
| FIN | 4.513 |
| FIN | 7.171 | 8.528 | 10.881 | 4.035 | 7.581 |
| HLT | 10.447 |
| HLT | 3.585 | 4.351 | 4.035 | 3.110 | 3.363 |
| CDS | 2.284 |
| CDS | 7.041 | 7.457 | 7.581 | 3.363 | 7.453 |
a) Determine the tangency portfolio weights, expected return, standard deviation and Sharpe ratio. Assume short sales are allowed.
b) Construct the risk-return equation. What combination of risk-free and tangency portfolio will result in a rate of return of 20% and what would be its standard deviation?
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Risk Sharing Finance
Authors: Bakkali Mirakhor, Saad Abbas
1st Edition
3110590468, 978-3110590463
