Find the weights and expected rate of return

Reference no: EM132185160

Question - Suppose two assets have variances of σ₁² = 1, σ₂² = 3 and covariance σ_1,2 = 1. The expected rates are r^-₁ = 1, r^-₂ = 2.

a) Find weights, expected rate of return r^-_MVP, and volatility σ_MVP for the minimum variance portfolio.

b) Make a sketch in the σ, r^-plane of the portfolio curve including the asset points (σ₁, r^-₁), (σ₂, r^-₂), the minimum variance point (σ_MVP, r^-_MVP), and the efficient frontier. Indicate which parts of the portfolio curve correspond to shorting.

c) Find the volatility σ for the portfolio that has expected rate of return r^- = 5/2.

Reference no: EM132185160

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