March 2010
Intermediate to advanced
238 pages
5h 59m
English
Content preview from Portfolio Optimization
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Sec. 4.4 Exercises 79
(b) Suppo se the expected return on the market changes from
µ
m
= 1.35 to µ
m
= 1.36. What is the implied change in the
risk free return?
4.8 Let µ
p0
and σ
p0
be as in Section 4.3.
(a) Show the Sharpe ratios (µ
p0
− r
m
)/(σ
2
p0
)
1/2
and R =
(σ
2
p0
)
1/2
/t
0
are identical, where r
m
= µ
p0
− σ
2
p0
/t
0
.
(b) Show the risk free returns r
m
= µ
p0
− σ
2
p0
/t
0
and r
m
=
µ
p0
− R(σ
2
p0
)
1/2
are identical, where R = (σ
2
p0
)
1/2
/t
0
.
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