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Expected Monthly Return Expected Monthly Return Risk Free Rate PG 0.010848 0.020000 (Annual) Microsoft 0.014854 0.001652 (Monthly) BAC 0.011589 Exxon 0.012043 Variance Variance Sigma PG
Expected Monthly Return | ||||
Expected Monthly Return | Risk Free Rate | |||
PG | 0.010848 | 0.020000 | (Annual) | |
Microsoft | 0.014854 | 0.001652 | (Monthly) | |
BAC | 0.011589 | |||
Exxon | 0.012043 | |||
Variance | ||||
Variance | Sigma | |||
PG | 0.004478 | 0.066918113 | ||
Microsoft | 0.012820 | 0.113225298 | ||
BAC | 0.005611 | 0.074907547 | ||
Exxon | 0.002820 | 0.053101828 | ||
Covariance | ||||
Cov(PG, Microsoft) | -0.000649 | |||
Cov(PG, BAC) | 0.000683 | |||
Cov(PG, Exxon) | 0.000433 | |||
Cov(Microsoft, BAC) | 0.001681 | |||
Cov(Microsoft, Exxon) | 0.000804 | |||
Cov(BAC, Exxon) | 0.000757 |
Assume that the yearly risk free rate is 2% (A monthly risk free rate of 0.001652). (a) Plot the minimum variance frontier for an investor who wants to allocate his money to PG, BAC, and the risk-free asset. Find the optimal risky portfolio. What are the mean and s.d. of the returns of this portfolio?
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