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Problem 5. (8 pts) Suppose that there are three uncorrelated assets. Each of the assets has variance 1. The mean returns are given by 1,
Problem 5. (8 pts) Suppose that there are three uncorrelated assets. Each of the assets has variance 1. The mean returns are given by 1, 2, and 3 respectively. a) (3 pts) Find the portfolio that has the smallest variance with expected return ux. Find the standard deviation of this portfolio in terms of ux. b) (5 pts) Repeat a) when there is no-short selling allowed. (Hint: discuss three different cases, based on the value range of ux) Problem 5. (8 pts) Suppose that there are three uncorrelated assets. Each of the assets has variance 1. The mean returns are given by 1, 2, and 3 respectively. a) (3 pts) Find the portfolio that has the smallest variance with expected return ux. Find the standard deviation of this portfolio in terms of ux. b) (5 pts) Repeat a) when there is no-short selling allowed. (Hint: discuss three different cases, based on the value range of ux)
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