Answered step by step
Verified Expert Solution
Question
1 Approved Answer
In a hypothetical world of 4 assets with the following information below. Assume no restrictions on short sales. Variance-covariance matrix Asset 1 Asset 2 Asset
In a hypothetical world of 4 assets with the following information below. Assume no restrictions on short sales.
Variance-covariance matrix | Asset 1 | Asset 2 | Asset 3 | Asset 4 |
| Expected returns |
Asset 1 | 0.10 |
|
|
|
| 0.06 |
Asset 2 | 0.02 | 0.20 |
|
|
| 0.07 |
Asset 3 | 0.04 | 0.04 | 0.40 |
|
| 0.08 |
Asset 4 | 0.05 | 0.01 | 0.10 | 0.60 |
| 0.09 |
Required: [Instruction: Show your workings and round your final answers to three decimal places e.g., 0.001 or 0.1% in all three parts; provide a screenshot of your key step in solving portfolio weights using Excel for part a.]
- Find the portfolio weights for the minimum risk premium portfolio using the four assets.
- Identify five new efficient portfolios and use a table to report their portfolio weights, portfolio returns, and standard deviations. Draw an efficient frontier diagram on the plane of return-standard deviation, using the six efficient portfolios identified.
- Suppose a portfolio is composed of equal weights of each asset (i.e., [0.25, 0.25, 0.25, 0.25]). Is the portfolio efficient? Support your answer with the results of your calculations.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started