0.0008 0.0001 r = 0.0005 -0.0009 -0.0003 \begin{bmatrix} 0.0004 & 0 & 0 & 0 & 0\\0 & 0.0002 & 0 & 0.0002 & 0.0001\\0 & 0 & 0.0002 & 0.0001 & 0.0001\\0 & 0.0002 & 0.0001 & 0.0006 & 0.0001\\0 & 0.0001 & 0.0001 & 0.0001 & 0.0002 \end{bmatrix} S = (Use these rounded $\mu$ and $S$ for subsequent analysis.) (b) Determine which risk-averse investors (in terms of the values of $t$) short sell in this market and which funds they short sell. Are there any funds that no-one will short sell or that everyone will short sell?
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To do this, we compare the returns of each fund (r) to the risk-free rate (s). If the return of a fund is less than the risk-free rate, it is considered a negative return and investors may be risk-averse and short sell that fund. Let's calculate the returns for Show more…
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