Use Excel's Solver tool to answer the given questions. Know that the minimum standard deviation...
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Use Excel's Solver tool to answer the given questions. Know that the minimum standard deviation of return for portfolios having an expected return of 7%, and allowing for shorting, is 15.02%.
| Annualized Mean Return (in %) | Annualized Std Dev of Return (in %) | |
| US | 6.12 | 15.28 |
| UK | 3.12 | 23.11 |
| China | 20.16 | 28.02 |
| Canada | 8.76 | 20.13 |
The pairwise return correlations matrix is:
| US | UK | China | Canada | |
| US | 1.00 | 0.72 | 0.45 | 0.81 |
| UK | - | 1.00 | - | - |
| China | - | 0.52 | 1.00 | - |
| Canada | - | 0.73 | 0.55 | 1.00 |
1.Can you generate a mean return of 20.16% with a lower standard deviation than the China index if short selling is not allowed? Explain.
2.For portfolios having a mean return of 25%, the minimum standard deviation of return is 29.53%. The weight on the UK index in this optimal portfolio is -110%, and is the only negative weight. Explain why the UK index is so aggressively shorted.
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