Suppose there are n assets which are uncorrelated. (They might be n different “wild cat” oil well prospects.) You may invest in any one, or in any combination of them. The mean rate of return r¯ is the same for each asset, but the variances are different. The return on asset i has a variance of σ2 i for i = 1, 2, . . . , n. (a) Show the situation on an r¯-σ diagram. Describe the efficient
Suppose there are n assets which are uncorrelated. (They might be n different “wild cat” oil well prospects.) You may invest in any one, or in any combination of them. The mean rate of return r¯ is the same for each asset, but the variances are different. The return on asset i has a variance of σ2 i for i = 1, 2, . . . , n. (a) Show the situation on an r¯-σ diagram. Describe the efficient
MATLAB: An Introduction with Applications
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Author:Amos Gilat
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Chapter1: Starting With Matlab
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Problem 1P
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Question
Suppose there are n assets which are uncorrelated. (They might
be n different “wild cat” oil well prospects.) You may invest in any one, or in
any combination of them. The mean rate of return r¯ is the same for each asset,
but the variances are different. The return on asset i has a variance of σ2
i for
i = 1, 2, . . . , n.
(a) Show the situation on an r¯-σ diagram. Describe the efficient set.
(b) Find the minimum-variance point. Express your result in terms of
σ¯2 =
!"n
i=1
1
σ2
i
#−1
.

Transcribed Image Text:6. (Wild cats) Suppose there are n assets which are uncorrelated. (They might
be n different "wild cat" oil well prospects.) You may invest in any one, or in
any combination of them. The mean rate of return ī is the same for each asset,
but the variances are different. The return on asset i has a variance of o? for
i = 1, 2, ... , n.
(a) Show the situation on an ī-o diagram. Describe the efficient set.
(b) Find the minimum-variance point. Express your result in terms of
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