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Question 1 0.5 pts Consider the addition of a 2% riskless rate as the fifth asset. For an expected return of 7%, using the five
Question 1 0.5 pts Consider the addition of a 2% riskless rate as the fifth asset. For an expected return of 7%, using the five assets and allowing for short selling, what is the minimum standard deviation of retum? (Report your answer as a percentage, rounded to two decimal places. For example, enter "10.38" for 10.38%.) U Question 2 0.5 pts Consider the addition of a 2% riskless rate as the fifth asset. For an expected return of 25%, using the five assets and allowing for short selling, what is the minimum standard deviation of return? (Report your answer as a percentage, rounded to two decimal places. For example, enter "10.38" for 10.38%.) Question 3 0.5 pts In each case above, the minimum standard deviation attainable is lower when using the five assets (four risky plus the riskless than when using only the four risky assets. Explain why that is happening. Be as clear as you can. Edit View Insert Format Tools Table 12pt Paragraph B IVA : p O words Question 4 0.5 pts Consider the weights on just the risky assets in the 5-asset optimal portfolios. Do the weights on the risky assets have any relations with each other as you move from one optimal portfolio to the other, eg. moving from optimal E(r)=7% to optimal E(r)=25%? Explain clearly. Note: Remember the picture of the optimal set of portfolios in the CAPM world. Edit View Insert Format Tools Table 12pt Paragraph B 1 U Av & TV Annualized Mean Annualized Std Dev Country Return (in %) of Return (in %) US UK 6.12 3.12 20.16 15.28 23.11 China 28.02 Canada 8.76 20.13 The pairwise return correlations matrix is: China US UK 1.00 0.72 Canada 0.81 0.45 1.00 US UK China Canada 0.52 1.00 0.73 0.55 1.00 Question 1 0.5 pts Consider the addition of a 2% riskless rate as the fifth asset. For an expected return of 7%, using the five assets and allowing for short selling, what is the minimum standard deviation of retum? (Report your answer as a percentage, rounded to two decimal places. For example, enter "10.38" for 10.38%.) U Question 2 0.5 pts Consider the addition of a 2% riskless rate as the fifth asset. For an expected return of 25%, using the five assets and allowing for short selling, what is the minimum standard deviation of return? (Report your answer as a percentage, rounded to two decimal places. For example, enter "10.38" for 10.38%.) Question 3 0.5 pts In each case above, the minimum standard deviation attainable is lower when using the five assets (four risky plus the riskless than when using only the four risky assets. Explain why that is happening. Be as clear as you can. Edit View Insert Format Tools Table 12pt Paragraph B IVA : p O words Question 4 0.5 pts Consider the weights on just the risky assets in the 5-asset optimal portfolios. Do the weights on the risky assets have any relations with each other as you move from one optimal portfolio to the other, eg. moving from optimal E(r)=7% to optimal E(r)=25%? Explain clearly. Note: Remember the picture of the optimal set of portfolios in the CAPM world. Edit View Insert Format Tools Table 12pt Paragraph B 1 U Av & TV Annualized Mean Annualized Std Dev Country Return (in %) of Return (in %) US UK 6.12 3.12 20.16 15.28 23.11 China 28.02 Canada 8.76 20.13 The pairwise return correlations matrix is: China US UK 1.00 0.72 Canada 0.81 0.45 1.00 US UK China Canada 0.52 1.00 0.73 0.55 1.00
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