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There are three distinct frontier portfolios, A, B and C. Portfolio Expected Returns Standard Deviation A...

There are three distinct frontier portfolios, A, B and C.

Portfolio

Expected Returns

Standard Deviation

A

0.4

0.40

B

0.2

0.30

C

0.3

0.25

  1. Compute, ρAB, the correlation between frontier portfolios A and B.

  1. Calculate the expected return on the global minimum variance portfolio.

  1. Calculate the maximum possible Sharpe Ratio from these frontier portfolios, when the risk free rate is 2% per annum.

d. Explain, illustrating with graphs, the difference between the portfolio frontier when there is a risk free asset available for investment as compared to the portfolio frontier when there is not.

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