How do you you know which portfolio gets weighted by ‘w’ and the other ‘1-w’? Based on the text, I noticed that the portfolio with the higher return was always weighted by ‘w’…so thats what I ran with, until I noticed it contradicts the guideline answer for the 2005 exam answer to Q#3. They say 8.1 = 8w + 8.2(1-w) I said based off what i thought was correct 8.1 = 8.2w + 8(1-w)
Same?
hmm i was wondering that too …I normally just pick (W) in the order it was presented . i.e if i see portfolios ABCd or 1234 and BC are the corner portoflios i pick B as ( W)
If you pick B to have weight W and C to have weight 1-W, your calculated W and (1-W) would be the same if you would have done it vice versa. I.e. your calculated W changes depending on wheather you chose B or C, but the weight of B or C remains the same. Try it.
Are you sure that works (i may not be understaning properly) Bcuz… If I use Return Objective = PortfolioA (w = 70%) + PortfolioB(1-w = 30%) Based on the equation above I end up applying 70% to A and 30% to B…this is different than applying to 30% to A and 70% to B
a = 4 b= 10 i want 5 5 =4w + 10(1-w) 5 = 4w + 10 - 10w -5 = -6w w = -5/-6 w = 0.833333 = 83% = weight of a 1-w = 17% = weight of b again, i want 5 5 = 4(1-w) + 10w 5 = 4 - 4w + 10w 1 = 6w w = 1/6 w = 17% = weight of b 1-w = 83% = weight of a both ways get the same result. you must always associate each w or (1-w) with the asset whose return you are using in the equation (in your example, 8 or 8.2) anyway, if you are having problems with this… just stop stuying for today, i think you need to rest, honestly
Sorry for the confusion the reason why my answer differed from that in the guideline was because they used 8.145 as a return objective…i used 8.14 doh i’m calling it a day.