Consider an individual who has Dollars to invest in two risky assets. The means and variances of the two rates of return are given by: µ₁ < µ2 and 0² < o². In other words, asset 1 is less risky. Show that the minimum variance his portfolio may achieve is lower than what it would be if he invests all his money in asset 1.

Consider an individual who has Dollars to invest in two risky assets. The means and variances of the two rates of return are given by: µ₁ < µ2 and 0² < o². In other words, asset 1 is less risky. Show that the minimum variance his portfolio may achieve is lower than what it would be if he invests all his money in asset 1.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.9P

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