ECON 424 Final: ECON 424 UW Final Fall04
Document Summary
This is a closed book and closed note exam. However, you are allowed one page (double sided) of notes. Answer all questions and write all answers in a blue book. Each question is worth 5 points, and total points = 120. I. matrix algebra and portfolio math (20 points) Let ri denote the continuously compounded return on asset i (i = 1, , n) with e[ri] = i, i and cov(ri, rj) = ij. 1 (cid:35) (cid:34) (cid:34) (cid:35) (cid:37) (cid:35) (cid:34) Using simple matrix algebra, answer the following questions: write down the optimization problem used to determine the global minimum variance portfolio assuming short sales are allowed. Let x denote the vector of portfolio weights in this efficient portfolio: write down the optimization problem used to determine the tangency portfolio, assuming fr . Let t denote the vector of portfolio short sales are allowed and the risk free rate is give by weights in the tangency portfolio.
