An Investor has access to a set of N securities (where N is large). Each of them has an annual return variance of 0.25 and the correlation between every pair of the N assets is 0.5. The investor wants to build an equally weighted portfolio of a subset of these N assets that has a return variance of 0.15 or smaller. What is the smallest number of assets that his portfolio should contain?

An Investor has access to a set of N securities (where N is large). Each of them has an annual return variance of 0.25 and the correlation between every pair of the N assets is 0.5. The investor wants to build an equally weighted portfolio of a subset of these N assets that has a return variance of 0.15 or smaller. What is the smallest number of assets that his portfolio should contain?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

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