Virginia Tech FIN FIN MISC Suppose you are a US investor looking for international diversification opportunities. Your investment advisor offers you an international equity…
d. Suppose your investment advisor suggests adding the risk-free asset to the portfolio.
In other words, your investment advisor recommends you to have a portfolio with three
assets: risk-free rate, US equity index, and the International Equity Index. Using the
following weights of the risk-free asset as the initial guess, estimate the portfolios that
maximize the Sharpe ratios of those portfolios.
|Risk-free asset||US Equity index returns (Weight)||International Equity index returns (Weight)||Expected Returns||Portfolio Standard Deviation||Slope of CAL (Sharpe Ratio)|
e. Finally, suppose you do not use the weights for the risk-free asset in part d, but any other
number you want to assume (as long as the weights of the 3-assets add up to 1). Find a
portfolio that maximizes the Sharpe ratio?
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