Expected return on the zero-beta portfolio

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The expected return and standard deviation of return on Asset 1 is ER1 and 0'1 respectively. The expected return and standard deviation of return on Asset 2 is ER2 and 0'2 respectively. The returns on these assets are uncorrelated. Assume that WI,1 of the index (market) portfolio is invested in Asset 1 and WI,2 =1-Wu of the index (market) portfolio is invested in Asset 2. Use values for ER1 = 20% ,01 = 10% ,ER2 =10% , 0'2 =6% and Wu =05.

(i) What is the expected return on the zero-beta portfolio?

(ii) What is the vector of weights in the global minimum-variance portfolio?

(iii) What is the covariance between the global minimum-variance portfolio and the zero-beta portfolio?

(iv) What is the equation of the security market line?

Reference no: EM133065296

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