Question

Problem 10.12 Find the minimum variance portfolio with expected rate of return of 8% using 5 assets with expected rates of return ? = [0.10, 0.12, 0.05, 0.03, 0.15]$^T$ , standard deviation ? = [0.4, 0.45, 0.15, 0.1, 0.5]$^T$ and covariances $\sigma_{12} = 0.02$, $\sigma_{13} = -0.01$, $\sigma_{14} = 0.005$, $\sigma_{15} = 0.001$, $\sigma_{23} =$ $-0.002$, $\sigma_{24} = 0.001$, $\sigma_{25} = 0.03$, $\sigma_{34} = 0$, $\sigma_{35} = 0.02$ and $\sigma_{45} = -0.02$. Calculate the minimum variance.

          Problem 10.12 Find the minimum variance portfolio with expected rate of
return of 8% using 5 assets with expected rates of return
? = [0.10, 0.12, 0.05, 0.03, 0.15]$^T$
, standard deviation
? = [0.4, 0.45, 0.15, 0.1, 0.5]$^T$
and covariances $\sigma_{12} = 0.02$, $\sigma_{13} = -0.01$, $\sigma_{14} = 0.005$, $\sigma_{15} = 0.001$, $\sigma_{23} =$
$-0.002$, $\sigma_{24} = 0.001$, $\sigma_{25} = 0.03$, $\sigma_{34} = 0$, $\sigma_{35} = 0.02$ and $\sigma_{45} = -0.02$.
Calculate the minimum variance.

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Problem 10.12 Find the minimum variance portfolio with expected rate of
return of 8% using 5 assets with expected rates of return
? = [0.10, 0.12, 0.05, 0.03, 0.15]^T
, standard deviation
? = [0.4, 0.45, 0.15, 0.1, 0.5]^T
and covariances σ12 = 0.02, σ13 = -0.01, σ14 = 0.005, σ15 = 0.001, σ23 =
-0.002, σ24 = 0.001, σ25 = 0.03, σ34 = 0, σ35 = 0.02 and σ45 = -0.02.
Calculate the minimum variance.

Added by Sean C.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Mukesh Devi

Step 1

The covariance matrix is a square matrix that contains the covariances between all pairs of assets. In this case, we have 5 assets, so the covariance matrix will be a 5x5 matrix. The covariance matrix can be calculated using the given covariances. The diagonal Show more…

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Problem 10.12 Find the minimum variance portfolio with expected rate of return of 8% using 5 assets with expected rates of return = [0.10,0.12,0.05,0.03,0.15] ,standard deviation = [0.4,0.45,0.15,0.1,0.5] and covariances 12=0.02,13=-0.01,014=0.005,015=0.001,023= -0.002,024=0.001,25=0.03,34=0,35=0.02 and 45=-0.02 Calculate the minimum variance.

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