Solutions to Financial Economics pp 11-14 | Cite as
3 Two-Period Model: Mean-Variance Approach
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Abstract
There are two risky assets, k = 1, 2 and one risk-free asset with return of 2%. Risky assets cannot be short sold. The expected returns of the risky assets are μ1 := 5% and μ2 := 7.5%. The covariance matrix is:
$$\displaystyle COV := \begin {pmatrix}2\% & -1\%\\ -1\% & 4\% \end {pmatrix}.$$
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