Assume That You Are Given the Following Means, Standard Deviations

question 33

Essay

Assume that you are given the following means, standard deviations, and correlations for the annual return on three stocks. The correlation between stocks 1 and 2 is 0.62, between stocks 1 and 3 is 0.72, and between stocks 2 and 3 is 0.39. You have $12,000 to invest and can invest no more than 55% of your money in any single stock. Determine the minimum variance portfolio that yields an expected annual return of at least 0.15

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Definitions:

Monetary Rule

The money supply may grow at a specified annual percentage rate, generally about 3–4 percent.

Money Supply

The total quantity of money available in the economy at a specific time, including cash, coins, and balances held in checking and savings accounts.

Recessionary Gap

This occurs when equilibrium GDP is less than full-employment GDP.

Aggregate Demand

The total demand for all goods and services within an economy at a given overall price level and in a given time period.