Question
Given the information in the following table, calculate the weight of the active portfolio (w*) if you are trying to create an optimal portolio using
Given the information in the following table, calculate the weight of the active portfolio (w*) if you are trying to create an optimal portolio using the index model.
| Asset | Expected return (%) | Beta | Residual std dev |
| Stock A | 0.18 | 1.9 | 0.22 |
| Stock B | 0.11 | 1.1 | 0.14 |
| Stock C | 0.09 | 0.7 | 0.115 |
| T-bills | 0.03 | 0 | 0 |
| Index (market) | 0.1 | ||
| Market std deviation | 0.2 |
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An Introduction to Investment Banks, Hedge Funds, and Private Equity
Authors: David P. Stowell
1st edition
978-0123745033, 0123745039, 978-9380931074
