in REading 18
Example 9
to find optimum portfolio, they used portfolio 3 and portfolio 4 with below equation
8.5=9.67w + 7.92(1-w)
In Example 10
they used portfolio 4 and risk free portfolio instead of portfolio 3.
what is the reason behind this?
In example they mentioned that they don’t want to reduce sharpe ratio.
how did they determine in example 10 not to minimize sharpe ratio vs example 9 where they didn’t care?
Thanks,
what it means is you need to read the “text”
Thats part of answer.
Where in question has it mentioned though? How do I know from question if I should do it without minimizing sharpe ratio.
A trustee has suggested that CEFA adopt the sole objective of minimizing the level of standard deviation of return subject to meeting its return objective.
Yes but that shouldn’t relate to sharpe ratio…
Sharpe ratio can be higher by having higher expected return as well…
if they asked for standard deviation, why not mention standard deviation?
Also, it looks like portfolio 4 combined with portfolio 5 should still lower standard deviation?
same return, reduce standard deviation
so that means higher sharpe.