Consider a world with risk assets and one riskfree asset: (a) What are "global minimum variance...

Consider a world with risk assets and one riskfree asset:

(a) What are "global minimum variance portfolio" and "optimal portfolio"? The question is asking about definitions/differences between two portfolios.

Expert Solution

Global minimum variance portfolio will be consisting of the risky Assets and it would be lying far left from the efficient Frontier portfolio.

global minimum variance portfolio is a highly diversified portfolio which is consisting of individually risky assets which are focused at minimization of the risk and maximization of the reward so when there would be a high number of risky assets than global minimum variance portfolio would be efficient in nature and there would be a combination of a large number of risky assets in order to make the most of return by diversification.

optimal portfolio is always considered for selecting the best combination of stocks in order to achieve the maximum rate of return so optimal portfolio will always be consisting the risk free assets along with the risky assets so it would have a better combination and mix of proper Assets and diversify in order to provide the maximum return to the investors.

So, the fundamental of global minimum variance portfolio and optimal portfolio are different in nature and they are also lying differently on efficient Frontier

jeff jeffy answered 1 year ago

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