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PROBLEM MUST BE DONE IN EXCEL Consider two risky assets, S and B , with the following characteristics: E ( rS ) = 9 %
PROBLEM MUST BE DONE IN EXCEL Consider two risky assets, S and B with the following characteristics: ErSsigma S ErBsigma B and rho BS a Is it possible to combine the two assets in a portfolio such that the portfolio has zero risk ie zero standard deviation If so what is the composition of the zerorisk portfolio? b Suppose that in addition to trading in the risky assets S and B investors can also freely buy, sell or shortsell a riskfree asset with riskfree rate rf What must be the riskfree rate rf What would happen otherwise?
PROBLEM MUST BE DONE IN EXCEL
Consider two risky assets, S and B with the following characteristics: ErSsigma S
ErBsigma B and rho BS
a Is it possible to combine the two assets in a portfolio such that the portfolio has zero risk ie zero standard deviation If so what is the composition of the zerorisk portfolio?
b Suppose that in addition to trading in the risky assets S and B investors can also freely buy, sell or shortsell a riskfree asset with riskfree rate rf What must be the riskfree rate rf What would happen otherwise?
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