Question

1.what criterion must a portfolio meet in order to be in the minimum variance set?

2. (a) What does it mean to say that a bond has a value less than one for its relative yield differential? What might account for such a differential?

(b) Why is the maturity of some bonds ambiguous?

Answer 1

1.A minimum variance portfolio indicates a well diversified portfolio that consists of individually risky assets,which are hedged when traded together,resulting in the lowest possible risk for the rate of expected return.

Portfolio to be in the minimum variance set must have lowest standard deviation achievable with the available population of stocks,given a particular level of expected rate of return.

To build a minimum variance portfolio,you have to stick with low valotility investments or a combination of a volatile invetments with low correlation to each other.