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Question 3 Consider two assets with the following characteristics and assume that short selling is not allowed: Standard Deviation Asset 1 3% Asset 2 6%

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Question 3 Consider two assets with the following characteristics and assume that short selling is not allowed: Standard Deviation Asset 1 3% Asset 2 6% (0) If the assets are independent, what is the minimum risk combination of the two assets? If the assets are perfectly negatively correlated, what is the minimum risk combination of the two assets? (50%) Explain the momentum effect. (50%) (ii)

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