Reference no: EM133122551
The expected returns of assets A and B are 15% and 10% respectively, and their standard deviations are 5% and 2%. Assume the correlation coefficient is 1, 0, and -1. Calculate:
a) Using excel, represent the Minimum Variance Frontier of portfolios for the 3 different correlation coefficients. Use weights for the portfolios from -1 to 2, in increments of 0.1, like we did in class.
b) Determine which portfolios are efficient in the three cases and explain why.
c) Determine the minimum variance portfolio in each of the three cases and draw a graph for each of them in excel.
d) Suppose that you can borrow and lend at the risk-free rate of 5%. Determine the Capital Market Line (CML) for each of the three possible correlation coefficients given above, and, for each case, draw a picture in excel where you superpose the Minimum Variance Frontier of Risky portfolios and the CML. If you had to choose one portfolio in one of the three pictures, which one would you choose?
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