An Investor has access to a set of N securities (where N is large). Each of them has an annual return variance of 0.25 and the correlation between every pair of the N assets is 0.5. The investor wants to build an equally weighted portfolio of a subset of these N assets that has a return variance of 0.15 or smaller. What is the smallest number of assets that his portfolio should contain?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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An investor has access to a set of N securities (where N is large). Each of them has an annual return variance of 0.25 and the
correlation between every pair of the N assets is 0.5. The investor wants to build an equally weighted portfolio of a subset of these N
assets that has a return variance of 0.15 or smaller. What is the smallest number of assets that his portfolio should contain?
Transcribed Image Text:Question: An investor has access to a set of N securities (where N is large). Each of them has an annual return variance of 0.25 and the correlation between every pair of the N assets is 0.5. The investor wants to build an equally weighted portfolio of a subset of these N assets that has a return variance of 0.15 or smaller. What is the smallest number of assets that his portfolio should contain?
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