q87, book 6, exam 1: answer said that CAL dominate the minimum variance frontier( the efficient frontier comprising exclusively risky assets). therefore, the expected return along the CAL will exceed that of the global minimum variance portfolio (which is on the minimum variance frontier) for the same level of risk. for how much it exceed, equal to the risk free rate, is it? Thanks,
how much it exceeds I believe is subjective. the global minimum variance thing is on the curve - which is below the tangency line - which forms the CAL as per the investor’s expectations.
you cannot say, because you need inputs. one is a line (CAL) the other is a hyperbola (efficient frontier). it depends on your assumption of std.dev.
I have difficulty to understand why a combination of global minimum variance portfolio and risk free asset could have return higher than the global minimum variance portfolio. … is there a graph that could help me to understand it? Thanks. cpk123 Wrote: ------------------------------------------------------- > how much it exceeds I believe is subjective. > > the global minimum variance thing is on the curve > - which is below the tangency line - which forms > the CAL as per the investor’s expectations.
http://wpcontent.answers.com/wikipedia/en/e/e1/Markowitz_frontier.jpg Once you pass the tangency portfolio on the CAL, you are using leverage to achiever higher expected rates of return.
why when all investors agree on all asset return, variance, and correlation expectations, then the market portfolio has the highest Sharpe ratio? does it mean that when when all investors agree on all asset return, variance, and correlation expectations, market portfolio is the most efficient portfolio and have highest return if the vol the same? Thanks. cpk123 Wrote: ------------------------------------------------------- > how much it exceeds I believe is subjective. > > the global minimum variance thing is on the curve > - which is below the tangency line - which forms > the CAL as per the investor’s expectations.