Question

8. You wish to form a portfolio from two assets with the following attributes: E(R1) = 0.04; 01 = 0.04; E(R2) = 0.08; 02 = 0.12; and 01,2 = 0.0048. Assume short selling is allowed, and you can lend or borrow unlimited amounts at the risk-free rate, what is the E(Rp) of the minimum risk portfolio?

Answer 1

find we need to find variance out weighte under minimum formula :- 1 . weight of a = 8 - Corarianced R, R2) + Max + Q Low CR, R2) Covariance between Ri & Ry Correlations of RIER, XR, XOR .0048 oux 12 .0000 2304 Kleightoff, - 1a 6.0000 230u) 04+18tex.000R 304 < .0164 - .00002304 .0144 +.0016 +.00004608 = 89-6%. -01437696 2.8960 01604608 noghrotec T-18960 2. l0u = 10:47. Expected retten of portfolio :- ule ElRp = = ER, XwR, HER, xwę .00x1896 +.0810.4% 2.03584 +.00832 = .044