Corner portfolios

CFA Level III
#1

Just got caught out by this, thought it might help someone. If you can use leverage: - take the one with the highest sharp ratio if you can’t use leverage, BUT the return is lower than the portfolio with highest sharp ratio - use the one with the highest sharp ratio and the invest in the risk free asset as well (tangency portfolio) if you can’t use leverage and the return is higher than the portfolio with the highest sharp ratio - use the two portfolios nearest the required return. (I think)

#2

TheBigBean Wrote: ------------------------------------------------------- > Just got caught out by this, thought it might help > someone. > > If you can use leverage: > > - take the one with the highest sharp ratio > Did a Schweser Exam # 2 in Volume 1 of their practice exams and they took the portfolio with the highest sharpe ratio which met the minimum required return. Originally, I chose just the one with the highest sharpe ratio… can someone confirm?

#3

PJStyles Wrote: > Did a Schweser Exam # 2 in Volume 1 of their > practice exams and they took the portfolio with > the highest sharpe ratio which met the minimum > required return. Originally, I chose just the one > with the highest sharpe ratio… can someone > confirm? I believe in that exam, leverage was not an option

#4

also remember if leverage is available you have to move only on CAL and not on efficient frontier

#5

Ahhh… missed the (assume no borrowing)… darn. Scored 70% on the afternoon session of Exam #2 and probably over 70% on the morning session as well… hopefully that’s a good sign because I got smoked on the afternoon session of #1 and scored 61%… GRR!

#6

if corner P has lower return than portfolio, if the corner p has highest sharpe then choose it if you can use leverage… logic is with leverage u can create higher return than corner p if you cant use leverage than corner p return must be considered first

#7

if you cant use leverage, and the portfolio with the highest return still doesnt have enough return to cover you, you cant achieve the return objective on those portfolio selection options