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Problem 2 We consider a market with 1 riskfree assets and N risky assets (where N > 3). The following table shows the expected return
Problem 2 We consider a market with 1 riskfree assets and N risky assets (where N > 3). The following table shows the expected return up and standard deviation op of 4 portfolios (which can contain riskfree asset and risky assets) Expected return Standard deviation op Portfolio 1 0.17 0.13 0.21 Portfolio 2 Portfolio 3 Portfolio 4 0.42 0.405 0.31 0.25 0.08 The return rate of riskfree asset is ri = 0.04. You are given that some of the portfolios are efficient. Suppose that CAPM formula is valid. (a) Which portfolio is efficient? Explain your answer. (b) Suppose that expected return of a portfolio is 0.2, find the amount of systematic risk (in term of variance) of the portfolio. (c) Is it possible to construct a portfolio with expected return up > 0.15 and op 0.3? Explain your answer. Problem 2 We consider a market with 1 riskfree assets and N risky assets (where N > 3). The following table shows the expected return up and standard deviation op of 4 portfolios (which can contain riskfree asset and risky assets) Expected return Standard deviation op Portfolio 1 0.17 0.13 0.21 Portfolio 2 Portfolio 3 Portfolio 4 0.42 0.405 0.31 0.25 0.08 The return rate of riskfree asset is ri = 0.04. You are given that some of the portfolios are efficient. Suppose that CAPM formula is valid. (a) Which portfolio is efficient? Explain your answer. (b) Suppose that expected return of a portfolio is 0.2, find the amount of systematic risk (in term of variance) of the portfolio. (c) Is it possible to construct a portfolio with expected return up > 0.15 and op 0.3? Explain your
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