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Use Excel's Solver tool to answer the given questions. Know that the minimum standard deviation...

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Finance

Use Excel's Solver tool to answer the given questions. Know that the minimum standard deviation of return for portfolios having an expected return of 7%, and allowing for shorting, is 15.02%.

Annualized Mean

Return (in %)

Annualized Std Dev

of Return (in %)

US

6.12

15.28

UK

3.12

23.11

China

20.16

28.02

Canada

8.76

20.13

The pairwise return correlations matrix is:

US UK China Canada
US 1.00 0.72 0.45 0.81
UK - 1.00 - -
China - 0.52 1.00 -
Canada - 0.73 0.55 1.00

1.Can you generate a mean return of 20.16% with a lower standard deviation than the China index if short selling is not allowed? Explain.

2.For portfolios having a mean return of 25%, the minimum standard deviation of return is 29.53%. The weight on the UK index in this optimal portfolio is -110%, and is the only negative weight. Explain why the UK index is so aggressively shorted.

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