Question
This is the question I am stuck on. I don't know how to solve this using calculus. What portfolio of domestic equity and domestic bonds
This is the question I am stuck on. I don't know how to solve this using calculus.
"What portfolio of domestic equity and domestic bonds minimizes risk (portfolio standard deviation)? Find a precise answer with weights to the nearest tenth of a percent (e.g. 32.1%) using calculus"
Our professor provided us a hint, saying "To find the minimum risk portfolio using Calculus, remember that a function's minimum is at the point where its first derivative is zero. I suggest solving for the weight that minimizes portfolio variance (by finding the derivative of portfolio variance with respect to the weight in one asset, and choosing the weight that makes this derivative equal to zero). This will give the same answer as minimizing portfolio standard deviation but with an easier derivative calculation."
I currently have an excel sheet with the individual stock returns and portfolio calculations as well. I can provide if it to have a better understanding of this equation, as I do not know what to analyze / how to calculate such an answer using excel.
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