Construct a graph that shows the feasible and efficient sets

Assignment Help Finance Basics

Reference no: EM132182358

Question - Stock A has an expected return r_A = 10% and σ_A = 10%. Stock B has r_B =14% and σ_B = 15%. r_AB = 0. The rate of return on riskless assets is 6%.

a. Construct a graph that shows the feasible and efficient sets, giving consideration to the existence of the riskless asset.

b. Explain what would happen to the CML if the two stocks had (a) a positive correlation coefficient or (b) a negative correlation coefficient.

c. Suppose these were the only three securities (A, B, and riskless) in the economy, and everyone's indifference curves were such that they were tangent to the QML to the right of the point where the CML was tangent to the efficient set of risky assets. Would this represent a stable equilibrium? If not, how would an equilibrium be produced?

Reference no: EM132182358

Questions Cloud

Evaluate the companys strategic position : Give your opinion as to whether your chosen company's industry is maturing or declining, based on its evolution history. Justify your answer.

Show the balance sheet of the federal reserve and mhm bank : Show the balance sheet of the Federal Reserve and MHM Bank if MHM Bank converts 75 percent of its excess reserves to loans

What is the world production rate of formaldehyde : What is the world production rate of formaldehyde in kg/h - Determine the feed rate of methanol to the process (kg/h), neglecting trace amounts

Why is dma used for devices that execute large transfers : What are the three reasons that buffering is performed? What is the least privilege principle? Why such a principle aid in the creation of protection systems?

Construct a graph that shows the feasible and efficient sets : Construct a graph that shows the feasible and efficient sets, giving consideration to the existence of the riskless asset

Explain the impact you think the transition from steve jobs : Explain the impact you think the transition from Steve Jobs to Tim Cook has had on Apple's primary stakeholder groups: customers, employees, and investors.

Different perspectives of the classical approach : Explain the different perspectives of the Classical Approach, Behavioral Approach, and the Scientific Approach.

What additional data you would need to fulfil the activity : Force yourself to identify at least 2 chart types from each of the 5 classifying chart families (CHRTS) that could portray different interesting editorial.

Constitution places restrictions on federal power : What article and section of the Constitution places restrictions on Federal power?

User Account

All Pages