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Characterize the minimum variance portfolio

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Question

Consider a market with only two assets A and B. Both A and B have the same expected return of 10%, and the standard deviation of return on both assets is 0.2. The correlation coefficient of returns on A and B is 0.3.

a. Characterize the minimum variance portfolio (MVP). That is, calculate its expected return and standard deviation of return.

b. Plot the portfolio frontier when short sales are allowed. Label as many relevant numbers as you can in the graph.

c. Plot the portfolio frontier when short sales are not allowed.

Reference no: EM133122495

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