Lecture 4

Question 1

What is the variance of the portfolio dependant on?

Answer 1

The way in which the returns of shares A and B move with each other

Question 2

How can the variance be increased or decreased

Answer 2

By varying the weights in which the shares are held

Question 3

What do we refer to the portion of the line that is continuous

Answer 3

The efficient frontier

Question 4

When is a portfolio on the efficient frontier?

Answer 4

1. No other portfolio offers the same expected return but has a lower standard deviation
2. No other portfolio has the same standard deviation but offers a higher expected return

Question 5

Tell me about the efficient frontier

Answer 5

At its left extremity; has the minimum variance portfolio
At its right extremity; has the single asset offering the highest expected return