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Suppose there were two portfolios known to be in the minimum variance set for a universe of three stocks. There are no restrictions on short
Suppose there were two portfolios known to be in the minimum variance set for a universe of three stocks. There are no restrictions on short sales. The weights for each of the two portfolios are as follows.
| X(A) | X(B) | X(C) |
Portfolio 1 | -0.5 | 0.5 | 1 |
Portfolio 2 | 1.25 | 0.25 | -0.5 |
- What would the stock weights be for a portfolio constructed by investing $3,000 in portfolio 1 and $1,000 in portfolio 2? Show your calculations.
- Would the new portfolio in part (i) be in the minimum variance set?
- Suppose you combined the portfolio in part (i) with Portfolio 1 to form yet another portfolio. Would this new portfolio be in the minimum variance set?
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