Forming A Portfolio with Company A and Company B
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Forming A Portfolio with Company A and Company B
Suppose you are forming a portfolio with Company A and Company B, which have expected returns and covariance matrix as in “Q4” tab of hw2.xls.
Construct portfolios consisting of the two stocks with a wide range of portfolio weights (e.g., 10%:90%, 20%:80%, etc.) Plot the portfolios on a chart with expected return on the y-axis and volatility on the x-axis.
What are the portfolio weights of your minimum-variance portfolio?
What range of portfolio weights produces inefficient portfolios?
Now, suppose you can save/borrow at the risk-free rate of 3%. What is the expected return and volatility of the tangent portfolio, and what are its portfolio weights?
Expected Return Company A 10% Company B 15% Covariance matrix A B A 0.0144 0.0066 B 0.0066 0.0848
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Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
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Forming A Portfolio with Company A and Company B