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Candyqin15 Essay

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Homework 2
All questions carry equal points.
1. (a) Suppose all distinct assets in the economy have a correlation of ρ = −.02 with every other asset. Let the variance of each asset be 0.25, and the investor holds an equally weighted portfolio of these assets. How many of such assets should an investor hold so that the variance of her portfolio is zero?

(b) If the correlation was 0.02 can the investor ever achieve a zero variance? (c) For the case that the correlation is 0.4, and the investor holds an equally weighted portfolio of 10 ass...

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0.02 0.25 0.4 0.5 02 1 1.5 10 100 130 2 20 3 36.8229 4 6 achiev amount asset assum b bank c calcul candyqin15 capm carri case class comment compound consist constant continu contract correl d distinct diversific dollar doubl e economi either equal estim ever everi exampl expect f0 forward given half hedg hold homework impli intuit invest investor larger let mani market matur might month note oil one period plan point portfolio posit price probabl produc quantiti question ratio report return revenu rf risk sell smaller spot stock suppos systemat time trade two u uncorrel unit unsystemat use valu varianc weight would write y year zero β ρ firm