<?xml version="1.0" encoding="UTF-8"?>
<Worksheet>
<Version major="13" minor="1"/>
<Label-Scheme value="2" prefix=""/>
<View-Properties presentation="false"><Hide name="Group Range"/></View-Properties>
<MapleNet-Properties elisiondigitsbefore="100" labelling="true" indentamount="4" elisiontermsthreshold="10000" ansi="false" errorbreak="1" useclientjvm="true" echo="1" imaginaryunit="I" labelwidth="20" plotdriver="openviz" elisiondigitsafter="100" plotoutput="terminal" rtablesize="10" elisiontermsbefore="100" elisiondigitsthreshold="10000" typesetting="standard" plotdevice="inline" verboseproc="1" showassumed="1" errorcursor="false" longdelim="true" plotoptions="" quiet="false" elisiontermsafter="100" screenwidth="79" preplot="" prettyprint="3" displayprecision="-1" warnlevel="3" screenheight="25" latexwidth="6.0" postplot="" prompt="&gt; " ShowLabels="true"/>
<Styles><Font name="Ordered List 1" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Annotation Text" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Ordered List 2" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Ordered List 3" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Ordered List 4" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Ordered List 5" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Author" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Annotation Title" background="[255,255,255]" bold="true" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="18" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Warning" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[0,0,255]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Maple Input Placeholder" background="[255,255,255]" bold="true" executable="true" family="Monospaced" foreground="[200,0,200]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Maple Plot" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Code" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[255,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Line Printed Output" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[0,0,255]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Text Output" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[0,0,255]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Diagnostic" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[40,120,40]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="2D Inert Output" background="[255,255,255]" bold="false" executable="true" family="Times New Roman" foreground="[144,144,144]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Normal" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Hyperlink" background="[255,255,255]" bold="false" executable="false" family="Serif" foreground="[0,128,128]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="true" placeholder="false"/>
<Font name="Maple Output" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Dash Item" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="2D Math" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Maple Input" background="[255,255,255]" bold="true" executable="true" family="Monospaced" foreground="[255,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="2D Output" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,255]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="2D Input" background="[255,255,255]" bold="false" executable="true" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="HyperlinkError" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[255,0,255]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="true" placeholder="false"/>
<Font name="Header and Footer" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="10" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Error" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[255,0,255]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Title" background="[0,0,0]" bold="true" executable="false" family="Arial" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="36" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Page Number" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="10" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Heading 1" background="[0,0,0]" bold="true" executable="false" family="Arial" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="18" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Text" background="[0,0,0]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Bullet Item" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Heading 4" background="[0,0,0]" bold="false" executable="false" family="Arial" foreground="[0,0,0]" italic="true" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Equation Label" background="[255,255,255]" bold="true" executable="false" family="Monospaced" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Heading 3" background="[0,0,0]" bold="true" executable="false" family="Arial" foreground="[0,0,0]" italic="true" opaque="false" readonly="false" size="14" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="Heading 2" background="[0,0,0]" bold="true" executable="false" family="Arial" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="16" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Font name="HyperlinkWarning" background="[255,255,255]" bold="false" executable="false" family="Monospaced" foreground="[0,0,255]" italic="false" opaque="false" readonly="true" size="12" subscript="false" superscript="false" underline="true" placeholder="false"/>
<Font name="Dictionary Hyperlink" background="[255,255,255]" bold="false" executable="false" family="Serif" foreground="[147,0,15]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="true" placeholder="false"/>
<Font name="List Item" background="[255,255,255]" bold="false" executable="false" family="Times New Roman" foreground="[0,0,0]" italic="false" opaque="false" readonly="false" size="12" subscript="false" superscript="false" underline="false" placeholder="false"/>
<Layout name="Ordered List 1" alignment="left" bullet="numeric" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="-1" bulletsuffix=""/>
<Layout name="Ordered List 2" alignment="left" bullet="alphabetic" firstindent="0" leftmargin="36" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="-1" bulletsuffix=""/>
<Layout name="Ordered List 3" alignment="left" bullet="roman" firstindent="0" leftmargin="72" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="-1" bulletsuffix=""/>
<Layout name="Ordered List 4" alignment="left" bullet="ALPHABETIC" firstindent="0" leftmargin="108" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="-1" bulletsuffix=""/>
<Layout name="Ordered List 5" alignment="left" bullet="ROMAN" firstindent="0" leftmargin="144" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="-1" bulletsuffix=""/>
<Layout name="Author" alignment="centred" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="8" spacebelow="8" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Warning" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Annotation Title" alignment="centred" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="12" spacebelow="12" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Maple Plot" alignment="centred" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Line Printed Output" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="any" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Text Output" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="newline" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Diagnostic" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="any" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Normal" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Maple Output" alignment="centred" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.3" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Dash Item" alignment="left" bullet="dash" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="HyperlinkError" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Error" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Title" alignment="centred" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="12" spacebelow="12" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Heading 1" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="7" spacebelow="4" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Bullet Item" alignment="left" bullet="dot" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Heading 4" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Heading 3" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="Heading 2" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="7" spacebelow="2" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="HyperlinkWarning" alignment="left" bullet="none" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="0" spacebelow="0" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Layout name="List Item" alignment="left" bullet="indent" firstindent="0" leftmargin="0" rightmargin="0" linespacing="0.0" spaceabove="3" spacebelow="3" linebreak="space" pagebreak-before="false" initial="0" bulletsuffix=""/>
<Pencil-style name="Pencil 5" pen-color="[255,0,0]" pen-height="5.0" pen-width="5.0" pen-opacity="1.0"/>
<Pencil-style name="Pencil 4" pen-color="[0,0,255]" pen-height="3.0" pen-width="3.0" pen-opacity="1.0"/>
<Pencil-style name="Pencil 3" pen-color="[0,0,0]" pen-height="3.0" pen-width="3.0" pen-opacity="1.0"/>
<Pencil-style name="Pencil 2" pen-color="[0,0,255]" pen-height="1.0" pen-width="1.0" pen-opacity="1.0"/>
<Pencil-style name="Pencil 1" pen-color="[0,0,0]" pen-height="1.0" pen-width="1.0" pen-opacity="1.0"/>
<Highlighter-style name="Highlighter 2" pen-color="[255,204,0]" pen-height="14.0" pen-width="14.0" pen-opacity="0.8"/>
<Highlighter-style name="Highlighter 1" pen-color="[255,153,255]" pen-height="12.0" pen-width="8.0" pen-opacity="0.8"/>
<Highlighter-style name="Highlighter 4" pen-color="[0,255,255]" pen-height="32.0" pen-width="32.0" pen-opacity="0.8"/>
<Highlighter-style name="Highlighter 3" pen-color="[51,255,0]" pen-height="24.0" pen-width="24.0" pen-opacity="0.8"/>
<Highlighter-style name="Highlighter 5" pen-color="[255,255,0]" pen-height="48.0" pen-width="48.0" pen-opacity="0.8"/>
</Styles>
<Task-table>
    <Task-category name="&lt;default&gt;">
    </Task-category>
</Task-table>
<Task>
</Task><Presentation-Block>
<Group view="presentation" hide-input="false" hide-output="true" inline-output="false" labelreference="L414" drawlabel="true">
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<Text-field style="Author" layout="Author">Steven R. Dunbar and Shengjie Guo
Department of Mathematics
University of Nebraska-Lincoln
Lincoln, NE 68588, USA
<Hyperlink linktarget="http://www.math.unl.edu/~sdunbar" hyperlink="true"><Font style="Author" underline="true" foreground="[0,128,128]">http://www.math.unl.edu/~sdunbar</Font></Hyperlink></Text-field>
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<Text-field style="Heading 1" layout="Heading 1">Application Information</Text-field></Title>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="true" family="Arial" size="14">Mathematics Content</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="false" family="Times New Roman" size="12">Visualization and mathematical analysis of the risk and rewards for portfolios of two and three risky securities, visualization of the efficient frontier of the portfolios, and selection of an optimal portfolio using economic utility.</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="true" family="Arial" size="14">Keywords</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="false" family="Times New Roman" size="12">Securities, portfolios, feasible set, efficient frontier, utility, random variable, normal distribution, jointly normally distributed random variables, expected value, mean, variance, covariance, correlation, parametric curves, Markowitz mean-variance analysis, utility.</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="true" family="Arial" size="14">Objectives</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="false" family="Times New Roman" size="12">Show how the risk and reward set of a portfolio of two or three securities whose returns are jointly normally distributed is calculated from standard theorems about the mean and variance of linear combinations of the random variables.  Use ideas from multivariable calculus to show how the feasible set is derived.  Visualize the efficient frontier of the risk and reward set.  Visualize the economic utility of the portfolio.  Show how the concept of economic utility selects a unique optimal portfolio on the efficient frontier.</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="true" family="Arial" size="14">Audience</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="false" family="Times New Roman" size="12">Instructors and students in classes on mathematical finance, economics, finance, statistics, actuarial science and multivariable calculus.</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="true" family="Arial" size="14">Time</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="false" family="Times New Roman" size="12">Approximately 30 minutes.</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="true" family="Arial" size="14">Prerequisite</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="false" family="Times New Roman" size="12">Understanding of random variables, normally distributed random variables, jointly normally distributed random variables including correlation and covariance, parametric curves, and multivariable calculus in general.</Font></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"></Text-field>
<Text-field style="Text" size="14" bold="true" family="Arial" layout="Normal"><Font bold="true" family="Arial" size="14">References</Font></Text-field>
<Text-field style="Text" layout="Normal">Any good book on mathematical statistics using multivariable calculus, for instance:</Text-field>
<Text-field style="Text" layout="Normal"><Font italic="true">Introduction to Mathematical Statistics</Font>, (6th edition) by R. Hogg, A. Craig, J. McKean, Prentice Hall, 2005, ISBN-13:	9780130085078.</Text-field>
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<Text-field style="Text" layout="Normal">Any good book on finance, especially those with a mathematical slant.  An easy introduction would be:
<Font italic="true">Investment Science</Font>, D. Luenberger,  Oxford University Press, USA, 1997, ISBN-13: 978-0195108095.
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<Text-field style="Text" layout="Normal">An advanced view would be:
<Font italic="true">Mean-Variance Analysis in Portfolio Choice and Capital Markets</Font>, Harry M. Markowitz, G. Peter Todd, William F. Sharpe, Wiley, 2000, ISBN-13: 978-1883249755.

Some definitions of economic and financial terms are adapted from <Hyperlink linktarget="http://www.investorwords.com" hyperlink="true"><Font style="Hyperlink">http://www.investorwords.com</Font></Hyperlink>.</Text-field>
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<Text-field style="Heading 1" layout="Heading 1">Background Information  and General Theory on Portfolios of Securities</Text-field></Title>
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<Text-field style="Heading 2" layout="Heading 2">Returns and Portfolios</Text-field><Title>
<Text-field style="Heading 1" layout="Heading 1"><Font style="Text">Any item of economic value owned by a business or an individual is an <Font italic="true">asset</Font>. Examples of such assets are cash, common stocks, bonds, real estate, certificates of deposit, options and derivatives, and in fact anything that can generate a present or future value.  In this worksheet, for simplicity our primary interest is in investments in common stocks.  We begin with some basic concepts concerning assets.</Font></Text-field>
<Text-field style="Heading 1" layout="Heading 1"><Font style="Text"> If </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GIzYkLUkjbW5HRiQ2JFEiMEYnL0Y5USdub3JtYWxGJ0ZBLyUvc3Vic2NyaXB0c2hpZnRHRkBGK0ZB">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GIzYkLUkjbW5HRiQ2JFEiMEYnL0Y5USdub3JtYWxGJ0ZBLyUvc3Vic2NyaXB0c2hpZnRHRkBGK0ZB</Equation><Font style="Text"> is the value of an asset at the end of an initial period (for instance, at the close of a stock trading day) and </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21uR0YkNiRRIjFGJy9GOVEnbm9ybWFsRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJy1JI21vR0YkNi1RMSZJbnZpc2libGVUaW1lcztGJ0Y/LyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0ZKLyUpc3RyZXRjaHlHRkovJSpzeW1tZXRyaWNHRkovJShsYXJnZW9wR0ZKLyUubW92YWJsZWxpbWl0c0dGSi8lJ2FjY2VudEdGSi8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRllGPw==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21uR0YkNiRRIjFGJy9GOVEnbm9ybWFsRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJy1JI21vR0YkNi1RMSZJbnZpc2libGVUaW1lcztGJ0Y/LyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0ZKLyUpc3RyZXRjaHlHRkovJSpzeW1tZXRyaWNHRkovJShsYXJnZW9wR0ZKLyUubW92YWJsZWxpbWl0c0dGSi8lJ2FjY2VudEdGSi8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRllGPw==</Equation><Font style="Text"> is the value at the end of the next period, then the<Font italic="true"> return </Font>is </Font><Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation><Font style="Text" italic="true">rate of return</Font><Font style="Text"> on an asset is defined as</Font></Text-field>
<Text-field style="Text" layout="Heading 1">      <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field></Title><Title>
<Text-field style="Text" layout="Heading 1"> Now consider an investor holding <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> different assets. Such a set of several different assets forms what we call a <Font italic="true">portfolio</Font>. One common example of a portfolio is a mutual fund, where stocks are mixed in some particular way to achieve some particular goal, for instance to maximize investors' return while reducing risk.

Now suppose an investor has purchased <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> assets at time zero with a total of <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21uR0YkNiRRIjBGJy9GOVEnbm9ybWFsRicvJS9zdWJzY3JpcHRzaGlmdEdGPkYrRj8=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21uR0YkNiRRIjBGJy9GOVEnbm9ybWFsRicvJS9zdWJzY3JpcHRzaGlmdEdGPkYrRj8=</Equation> amount of money.   The amount invested in stock <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> is <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation> where <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>.  The weight of each asset <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> in the portfolio is then <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEid0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJpRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEid0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJpRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=</Equation> where 
      <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation><Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field></Title><Title>
<Text-field style="Text" layout="Heading 1">where <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation> so</Text-field>
<Text-field style="Text" layout="Heading 1">       <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Heading 1">Suppose after one period of time, the value of the whole portfolio becomes <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21uR0YkNiRRIjFGJy9GOVEnbm9ybWFsRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRj8=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21uR0YkNiRRIjFGJy9GOVEnbm9ybWFsRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRj8=</Equation>, and the value of each asset becomes <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>. Therefore, if we let <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJwRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJwRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=</Equation> denote the rate of return of the entire portfolio, we can obtain the following

    <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation> = <Equation executable="false" style="Text" input-equation="" display="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">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</Equation><Equation executable="false" style="2D Math" input-equation="" 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= <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJwRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJwRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=</Equation><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2I1EhRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYn">JSFH</Equation></Text-field></Title>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal">Thus, we see that the weighted sum of the individual asset returns is the portfolio return.</Text-field>
<Text-field style="Heading 2" layout="Heading 2">
Modeling Returns and Rates of Returns as Random Variables</Text-field>
<Text-field style="Heading 2" layout="Heading 2"><Font style="Text">Most of the time when people invest in assets, especially in stocks, the return on assets is uncertain.  This means  that there exists a range of possible outcomes for the return, with some kind of relative frequency or distribution.  The return </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation><Font style="Text">, defined in this way before its value is actually known, is called a<Font italic="true"> </Font></Font><Hyperlink linktarget="Dictionary:random variable,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">random variable</Font></Hyperlink><Font style="Text">.  In order to describe and understand the behavior of stock returns, we assume that the return on a stock is a </Font><Hyperlink linktarget="Dictionary:normal distribution,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">normal</Font></Hyperlink><Font style="Text"> random variable. The following are four reasons for this assumption.</Font></Text-field>
<Text-field style="Text" layout="Normal" bullet="dot">   First of all, by observing historical data on stock returns, we notice that the returns tend to form a bell-shaped normal distribution.</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Section collapsed="false" MultipleChoiceAnswerIndex="-1" MultipleChoiceRandomizeChoices="false" TrueFalseAnswerIndex="-1" EssayAnswerRows="5" EssayAnswerColumns="60"><Title>
<Text-field style="Heading 2" layout="Heading 2">Example:  Returns on Pepsi</Text-field></Title>
<Text-field style="Text" layout="Normal">Consider the following set of returns on Pepsi, from September 16, 2003 to September 13, 2006.   (Specifically, the returns are daily close-to-close returns on the Pepsi Bottling Group, symbol NYSE:PBG. The first return is the close-to-close difference from September 16, 2003 to September 15, 2003, and the last return is the close-to-close difference from September 13, 2006 to September 12, 2006.</Text-field>
<Text-field style="Text" layout="Normal"></Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion0" pixel-width="900" pixel-height="500">#Pepsi Returns

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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="mean_pepsi_returns := Statistics[Mean](pepsi_returns)" display="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">PkkzbWVhbl9wZXBzaV9yZXR1cm5zRzYiLSZJK1N0YXRpc3RpY3NHNiQlKnByb3RlY3RlZEdJKF9zeXNsaWJHRiQ2I0klTWVhbkdGJDYjSS5wZXBzaV9yZXR1cm5zR0Yk</Equation></Text-field>
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="stddev_pepsi_returns := Statistics[StandardDeviation](pepsi_returns)" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYnLUkjbWlHRiQ2I1EhRictRiM2Jy1GLDYlUTVzdGRkZXZfcGVwc2lfcmV0dXJuc0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjhRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0ZCLyUpc3RyZXRjaHlHRkIvJSpzeW1tZXRyaWNHRkIvJShsYXJnZW9wR0ZCLyUubW92YWJsZWxpbWl0c0dGQi8lJ2FjY2VudEdGQi8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRlEtRiM2J0YrLUYjNiUtRiw2JVErU3RhdGlzdGljc0YnRjRGNy1JKG1mZW5jZWRHRiQ2Ji1GIzYmRistRiM2JC1GLDYlUTJTdGFuZGFyZERldmlhdGlvbkYnRjRGN0Y+RitGPkY+LyUlb3BlbkdRIltGJy8lJmNsb3NlR1EiXUYnRj4tRjs2LVEwJkFwcGx5RnVuY3Rpb247RidGPkZARkNGRUZHRklGS0ZNL0ZQUSYwLjBlbUYnL0ZTRmlvLUZmbjYkLUYjNiQtRiw2JVEucGVwc2lfcmV0dXJuc0YnRjRGN0Y+Rj5GPkYrRj5GKy8lK2V4ZWN1dGFibGVHRkJGPg==">Pkk1c3RkZGV2X3BlcHNpX3JldHVybnNHNiItJkkrU3RhdGlzdGljc0c2JCUqcHJvdGVjdGVkR0koX3N5c2xpYkdGJDYjSTJTdGFuZGFyZERldmlhdGlvbkdGJDYjSS5wZXBzaV9yZXR1cm5zR0Yk</Equation></Text-field>
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<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCIrSTNuKXklISM1</Equation></Text-field>
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</Group></Presentation-Block><Presentation-Block><CodeEditor-ExecGroup view="presentation" hide-input="false" hide-output="true" inline-output="false" display="button"><EC-CodeEditor id="CodeEditRegion1" pixel-width="900" pixel-height="300">#Plot Histogram

hist := Statistics[Histogram]( pepsi_returns, binwidth=0.2, frequencyscale=relative, color=white, range=-3..3, ytickmarks=[0.5,1], labels=[&quot;Pepsi Returns&quot;, &quot;&quot;]):
normal_curve := 1/2*2^(1/2)/Pi^(1/2)/stddev_pepsi_returns*exp(-1/2*(t-mean_pepsi_returns)^2/stddev_pepsi_returns^2):
n_c := plot( normal_curve, t = -3..3):
plots[display](hist, n_c);
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<Output>
<Text-field style="Maple Plot" layout="Maple Plot"><Plot height="400" type="two-dimensional" width="400" gridlinevisibility="1" 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<Input>
<Text-field style="Text" layout="Normal">However, the match is not as close as one might hope.  By making a chi-squared goodness-of-fit test against the normal distribution, we see that the hypothesis that the sample of returns was drawn from a normal distribution with corresponding mean and standard deviation is not supported.
</Text-field>
</Input>
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<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="infolevel[Statistics] := 1; -1; Statistics[ChiSquareSuitableModelTest](pepsi_returns, Normal(mean_pepsi_returns, stddev_pepsi_returns), bins = 14)" display="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">QyU+JkkqaW5mb2xldmVsR0koX3N5c2xpYkc2IjYjSStTdGF0aXN0aWNzRzYkJSpwcm90ZWN0ZWRHRiYiIiIhIiItJkYpNiNJO0NoaVNxdWFyZVN1aXRhYmxlTW9kZWxUZXN0R0YnNiVJLnBlcHNpX3JldHVybnNHRictSSdOb3JtYWxHRic2JEkzbWVhbl9wZXBzaV9yZXR1cm5zR0YnSTVzdGRkZXZfcGVwc2lfcmV0dXJuc0dGJy9JJWJpbnNHRiciIzk=</Equation></Text-field>
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<Output>
<Text-field superscript="false" placeholder="false" executable="false" selection-placeholder="false" italic="false" size="12" bold="false" subscript="false" family="Times New Roman" opaque="false" underline="false" background="[255,255,255]" readonly="false" foreground="[0,0,0]" alignment="centred" firstindent="0" spacebelow="0" leftmargin="0" linespacing="0.0" initial="0" linebreak="space" rightmargin="0" bulletsuffix="" spaceabove="0" bullet="none" pagebreak-before="false"><Equation executable="false" style="2D Output" display="LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=">LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=</Equation></Text-field>
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<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal">print(<Label label="L431" view="label" executable="true"></Label>); # input placeholder</Text-field>
</Input>
<Output>
<Text-field style="Line Printed Output" layout="Line Printed Output">Chi-Square Test for Suitable Probability Model
----------------------------------------------
Null Hypothesis:
Sample was drawn from specified probability distribution
Alt. Hypothesis:
Sample was not drawn from specified probability distribution

Bins:                    14</Text-field>
<Text-field style="Line Printed Output" layout="Line Printed Output">Distribution:            ChiSquare(13)
Computed statistic:      45.7447
Computed pvalue:         1.57111e-05
Critical value:          22.36203243

Result: [Rejected]
There exists statistical evidence against the null hypothesis</Text-field>
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation></Text-field>
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<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal" bullet="dot"> The second reason is that a normal distribution can be completely defined by two numbers, the <Hyperlink linktarget="Dictionary:expected value,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">expected value</Font></Hyperlink> and <Hyperlink linktarget="Dictionary:variance,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">variance</Font></Hyperlink>.  Therefore, if returns are assumed to be normally distributed, these are the only two numbers an investor needs to consider.   This simplifies analysis enormously.</Text-field>
<Text-field style="Text" layout="Normal" bullet="dot">    Third, normal distributions are easy to work with mathematically. Suppose <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> is <Hyperlink linktarget="Dictionary:normal distribution,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">normally distributed</Font></Hyperlink>, its probability density function is defined as 
    <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>for <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>  </Text-field>
<Text-field style="Text" layout="Normal">  In this formula,  <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRictRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRidGNQ==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRictRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRidGNQ==</Equation> is the expected value, or mean, of <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiWEYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation>, <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4</Equation> is the variance, and <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4</Equation> is known as the variance.</Text-field>
<Text-field style="Text" layout="Normal" bullet="dot"> Fourth, the normal random variable is most commonly accepted random variable for modeling security returns. .   Some experts believe that there are other, better choices of random variable model for security returns, but the simplicity of the normal random variable outweighs those concerns for the purposes of this discussion.</Text-field>
<Text-field style="Text" layout="Normal" bullet="dot">One more assumption we need to make is that when dealing with a number of stocks in a portfolio, the returns are jointly normally distributed. In other words, all the stock returns in a portfolio are jointly distributed normal random variables.  There are two measures associated with the joint normal distribution between stock returns: the <Hyperlink linktarget="Dictionary:covariance,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">covariance</Font></Hyperlink> <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictRiw2JVEjWFlGJy9GNlEldHJ1ZUYnL0Y5USdpdGFsaWNGJy8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjgvJSZmZW5jZUdGNy8lKnNlcGFyYXRvckdGNy8lKXN0cmV0Y2h5R0Y3LyUqc3ltbWV0cmljR0Y3LyUobGFyZ2VvcEdGNy8lLm1vdmFibGVsaW1pdHNHRjcvJSdhY2NlbnRHRjcvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZZRjg=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictRiw2JVEjWFlGJy9GNlEldHJ1ZUYnL0Y5USdpdGFsaWNGJy8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjgvJSZmZW5jZUdGNy8lKnNlcGFyYXRvckdGNy8lKXN0cmV0Y2h5R0Y3LyUqc3ltbWV0cmljR0Y3LyUobGFyZ2VvcEdGNy8lLm1vdmFibGVsaW1pdHNHRjcvJSdhY2NlbnRHRjcvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZZRjg=</Equation>and the <Hyperlink linktarget="Dictionary:Definition,correlation" hyperlink="true"><Font style="Dictionary Hyperlink">correlation coefficient</Font></Hyperlink>, <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEpJnZhcnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnRisvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRjg=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEpJnZhcnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnRisvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRjg=</Equation>, .  A positive  <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjIvJSZmZW5jZUdGMS8lKnNlcGFyYXRvckdGMS8lKXN0cmV0Y2h5R0YxLyUqc3ltbWV0cmljR0YxLyUobGFyZ2VvcEdGMS8lLm1vdmFibGVsaW1pdHNHRjEvJSdhY2NlbnRHRjEvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZJRjI=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjIvJSZmZW5jZUdGMS8lKnNlcGFyYXRvckdGMS8lKXN0cmV0Y2h5R0YxLyUqc3ltbWV0cmljR0YxLyUobGFyZ2VvcEdGMS8lLm1vdmFibGVsaW1pdHNHRjEvJSdhY2NlbnRHRjEvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZJRjI=</Equation><Font encoding="UTF-8">indicates a direct relationship between the two stocks, meaning that when the one of the two stocks goes up, the other one also goes up.  A negative \317\201, in contrast,  indicates an inverse relationship, that is, when one of the returns goes up, the other one goes down.    In addition, there exists a </Font><Font italic="true">covariance</Font>, usually denoted <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation> or <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictRiw2JVEjWFlGJy9GNlEldHJ1ZUYnL0Y5USdpdGFsaWNGJy8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictRiw2JVEjWFlGJy9GNlEldHJ1ZUYnL0Y5USdpdGFsaWNGJy8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==</Equation>, defined by <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>.  It is a well-known fact that the correlation coefficient <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUYsNiVRI2lqRicvRjZRJXRydWVGJy9GOVEnaXRhbGljRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRjg=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUYsNiVRI2lqRicvRjZRJXRydWVGJy9GOVEnaXRhbGljRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRjg=</Equation> is always between <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbW9HRiQ2LVEoJm1pbnVzO0YnLyUsbWF0aHZhcmlhbnRHUSdub3JtYWxGJy8lJmZlbmNlR1EmZmFsc2VGJy8lKnNlcGFyYXRvckdGNC8lKXN0cmV0Y2h5R0Y0LyUqc3ltbWV0cmljR0Y0LyUobGFyZ2VvcEdGNC8lLm1vdmFibGVsaW1pdHNHRjQvJSdhY2NlbnRHRjQvJSdsc3BhY2VHUSwwLjI3Nzc3NzhlbUYnLyUncnNwYWNlR0ZDLUkjbW5HRiQ2JFEiMUYnRi9GLw==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbW9HRiQ2LVEoJm1pbnVzO0YnLyUsbWF0aHZhcmlhbnRHUSdub3JtYWxGJy8lJmZlbmNlR1EmZmFsc2VGJy8lKnNlcGFyYXRvckdGNC8lKXN0cmV0Y2h5R0Y0LyUqc3ltbWV0cmljR0Y0LyUobGFyZ2VvcEdGNC8lLm1vdmFibGVsaW1pdHNHRjQvJSdhY2NlbnRHRjQvJSdsc3BhY2VHUSwwLjI3Nzc3NzhlbUYnLyUncnNwYWNlR0ZDLUkjbW5HRiQ2JFEiMUYnRi9GLw==</Equation> and 1.
</Text-field>
<Text-field style="Text" layout="Normal">Based on the assumptions made above, in 1952 Harry Markowitz developed a mathematical model which describes and quantifies the trade-off between risk and return in portfolio construction.  This method is called <Font italic="true">Mean-Variance analysis</Font>.
</Text-field>
<Text-field style="Text" layout="Normal">Suppose that there are <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> assets in a portfolio with random rates of return <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GIzYlLUkjbW5HRiQ2JFEiMUYnL0Y5USdub3JtYWxGJ0YrRkEvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRkE=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GIzYlLUkjbW5HRiQ2JFEiMUYnL0Y5USdub3JtYWxGJ0YrRkEvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRkE=</Equation>, <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>and that they have expected values <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>. Then the mean, or expected return of the entire portfolio can be expressed as a linear combination according to the weights of the individual stocks held in the portfolio.
    <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Normal">The variance of a portfolio measures how much the portfolio return varies from its expected return. We denote the variance of the return of stock <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> by <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictRiM2JkYrLUklbXN1cEdGJDYlLUYjNiZGKy1GIzYmRistRiw2JVEiaUYnL0Y2USV0cnVlRicvRjlRJ2l0YWxpY0YnRitGOEYrRjhGKy8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4LyUvc3Vic2NyaXB0c2hpZnRHRk1GK0Y4">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictRiM2JkYrLUklbXN1cEdGJDYlLUYjNiZGKy1GIzYmRistRiw2JVEiaUYnL0Y2USV0cnVlRicvRjlRJ2l0YWxpY0YnRitGOEYrRjhGKy8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4LyUvc3Vic2NyaXB0c2hpZnRHRk1GK0Y4</Equation><Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>.  The larger the variance, the more volatile the stock is.</Text-field>
<Text-field style="Text" layout="Normal">
We also need to be aware that stocks in the portfolio are related.  We can measure this relationship numerically on pairs of stocks by <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUYsNiVRI2lqRicvRjZRJXRydWVGJy9GOVEnaXRhbGljRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRjg=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUYsNiVRI2lqRicvRjZRJXRydWVGJy9GOVEnaXRhbGljRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJ0YrRjg=</Equation>, the correlation coefficient.  It is defined by
    <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Heading 2" layout="Heading 2">Mean-Variance Analysis of Portfolios</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal">The practice of combining a few assets into one portfolio is referred to as <Font italic="true">diversification</Font>. Diversification is  helpful in reducing risks and creating a more stable investment return for investors.  Portfolios with only a few assets may be subject to a high degree of risk, represented by having a relatively large variance</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal">Let us take a simple first look at how diversification can reduce our investment risk. We first look at a very simple portfolio where the assets are uncorrelated, that is, let <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYnLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUYsNiVRI2lqRicvRjZRJXRydWVGJy9GOVEnaXRhbGljRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJy1JI21vR0YkNi1RIj1GJ0Y4LyUmZmVuY2VHRjcvJSpzZXBhcmF0b3JHRjcvJSlzdHJldGNoeUdGNy8lKnN5bW1ldHJpY0dGNy8lKGxhcmdlb3BHRjcvJS5tb3ZhYmxlbGltaXRzR0Y3LyUnYWNjZW50R0Y3LyUnbHNwYWNlR1EsMC4yNzc3Nzc4ZW1GJy8lJ3JzcGFjZUdGWS1JI21uR0YkNiRGREY4Rjg=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYnLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUYsNiVRI2lqRicvRjZRJXRydWVGJy9GOVEnaXRhbGljRicvJS9zdWJzY3JpcHRzaGlmdEdRIjBGJy1JI21vR0YkNi1RIj1GJ0Y4LyUmZmVuY2VHRjcvJSpzZXBhcmF0b3JHRjcvJSlzdHJldGNoeUdGNy8lKnN5bW1ldHJpY0dGNy8lKGxhcmdlb3BHRjcvJS5tb3ZhYmxlbGltaXRzR0Y3LyUnYWNjZW50R0Y3LyUnbHNwYWNlR1EsMC4yNzc3Nzc4ZW1GJy8lJ3JzcGFjZUdGWS1JI21uR0YkNiRGREY4Rjg=</Equation>.</Text-field>
<Text-field style="Text" layout="Normal">Assume for simplicity we have  assets each with equal weight <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>. Let <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJpRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEickYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1GLDYlUSJpRidGNUY4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRidGKy9GOVEnbm9ybWFsRic=</Equation> denote the return for asset <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEiaUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation>, and assume<Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y4LyUpc3RyZXRjaHlHRjgvJSpzeW1tZXRyaWNHRjgvJShsYXJnZW9wR0Y4LyUubW92YWJsZWxpbWl0c0dGOC8lJ2FjY2VudEdGOC8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRkctRiw2JVElJm11O0YnLyUnaXRhbGljR0Y4RjNGMw==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y4LyUpc3RyZXRjaHlHRjgvJSpzeW1tZXRyaWNHRjgvJShsYXJnZW9wR0Y4LyUubW92YWJsZWxpbWl0c0dGOC8lJ2FjY2VudEdGOC8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRkctRiw2JVElJm11O0YnLyUnaXRhbGljR0Y4RjNGMw==</Equation> and <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4</Equation> are the expected return and variance for all stocks in the portfolio. Then the overall expected return of this portfolio is <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>.  The corresponding variance is  <Equation executable="false" style="2D Math" input-equation="" display="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">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYsLUkjbWlHRiQ2JVEkVmFyRicvJSdpdGFsaWNHUSV0cnVlRicvJSxtYXRodmFyaWFudEdRJ2l0YWxpY0YnLUkobWZlbmNlZEdGJDYmLUYjNiQtRiw2JVEicEYnRi9GMi9GM1Enbm9ybWFsRidGPS8lJW9wZW5HUSJbRicvJSZjbG9zZUdRIl1GJy1JI21vR0YkNi1RMSZJbnZpc2libGVUaW1lcztGJ0Y9LyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0ZLLyUpc3RyZXRjaHlHRksvJSpzeW1tZXRyaWNHRksvJShsYXJnZW9wR0ZLLyUubW92YWJsZWxpbWl0c0dGSy8lJ2FjY2VudEdGSy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlotRkY2LVEiPUYnRj1GSUZMRk5GUEZSRlRGVi9GWVEsMC4yNzc3Nzc4ZW1GJy9GZm5GW29GRS1JJm1mcmFjR0YkNigtSSNtbkdGJDYkUSIxRidGPS1GIzYmLUYsNiNRIUYnLUklbXN1cEdGJDYlLUYsNiVRIm5GJ0YvRjItRmFvNiRRIjJGJ0Y9LyUxc3VwZXJzY3JpcHRzaGlmdEdRIjBGJ0Zmb0Y9LyUubGluZXRoaWNrbmVzc0dGY28vJStkZW5vbWFsaWduR1EnY2VudGVyRicvJSludW1hbGlnbkdGaXAvJSliZXZlbGxlZEdGS0Zmby1GIzYsRmZvLUkrbXVuZGVyb3ZlckdGJDYnLUZGNi1RJiZTdW07RidGPUZJRkwvRk9GMUZQL0ZTRjEvRlVGMUZWRlgvRmZuUSwwLjE2NjY2NjdlbUYnLUYjNihGZm8tRiw2KFEiaUYnLyUlc2l6ZUdRIzEwRidGLy8lK2ZvcmVncm91bmRHUSxbMjAwLDAsMjAwXUYnLyUscGxhY2Vob2xkZXJHRjFGMkZnbkZgb0Zmb0Y9RlxwRlYvJSxhY2NlbnR1bmRlckdGS0Zmby1Gam82JS1GLDYlUSgmc2lnbWE7RicvRjBGS0Y9Rl9wRmJwRmduRkUtRl5vNigtRiM2JkZmb0ZqckZmb0Y9RlxwRmVwRmdwRmpwRlxxLUZGNi1RIi5GJ0Y9RklGTEZORlBGUkZURlZGWEZlbkZFRj1GZm9GPQ==</Equation></Text-field>
<Text-field style="Text" layout="Normal">Therefore, as <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> gets larger, the variance of our simple portfolio return decreases while the mean remains the same.  We have reduced risk while maintaining reward..</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal"> A more typical situation is when assets are correlated.  Continue to assume<Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y4LyUpc3RyZXRjaHlHRjgvJSpzeW1tZXRyaWNHRjgvJShsYXJnZW9wR0Y4LyUubW92YWJsZWxpbWl0c0dGOC8lJ2FjY2VudEdGOC8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRkctRiw2JVElJm11O0YnLyUnaXRhbGljR0Y4RjNGMw==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y4LyUpc3RyZXRjaHlHRjgvJSpzeW1tZXRyaWNHRjgvJShsYXJnZW9wR0Y4LyUubW92YWJsZWxpbWl0c0dGOC8lJ2FjY2VudEdGOC8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRkctRiw2JVElJm11O0YnLyUnaXRhbGljR0Y4RjNGMw==</Equation> and <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3VwR0YkNiUtRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGK0Y4</Equation> are the expected return and variance for all stocks in the portfolio.  Suppose again for extreme simplicity each return pair has a correlation of <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEia0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEia0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation>. Then</Text-field>
<Text-field style="Text" layout="Normal">    <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>where <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>    </Text-field>
<Text-field style="Text" layout="Normal"> Our portfolio variance then becomes</Text-field>
<Text-field style="Text" layout="Normal"><Equation executable="false" style="Text" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Normal">  As <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> gets larger, the first part of the result decreases very quickly. However, no matter how large <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> is, the total variance is not going to go away as in the first case where the correlation coefficient is zero.  In fact, this result indicates that diversification is able to diversify away firm-specific risks but it cannot eliminate the market risk .  <Font italic="true">Market risk</Font> is the risk common to an entire class of assets. For example, the value of investments may decline over a given time period simply because of economic changes or other events that impact large portions of the market.  Here the market risk is represented by the constant correlation between individual assets</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Heading 2" layout="Heading 2">Efficient Frontier</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Heading 2" layout="Heading 2"><Font style="Text">Suppose that we have a set of </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEibkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation> <Font style="Text" encoding="UTF-8">securities.  We can weight the proportions of the securities in any way up to the total wealth we have available to invest into a portfolio.  Each portfolio will have a return which is the weighted sum of the returns and also a risk, which is the combination of the risks as above, based on the variances and covariances.  Then the portfolio is characterized by it risk and returns.   Let \356\222\234 be the set of all possible mean-variance portfolio profiles, also called the </Font><Font style="Text" italic="true">feasible set</Font><Font style="Text">.  That is, no matter what combination of stocks an investor decides on, one can find the corresponding risk-return pair in this feasible set. The feasible set has two important properties.</Font></Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal" bullet="dot">First of all, when there are just two assets in a portfolio, the feasible set of linear combinations of  the two assets subject to the total wealth being a constant forms a curve, as demonstrated below.  When there are three or more assets in a portfolio, the feasible set becomes a solid two-dimensional region (See below). The reason is that the set of linear combinations of asset 1 and 2 subject to the total wealth forms a curve between them, as well as with asset 2 and  3, and 1 and 3. Connecting all combinations of points on all three curves gives us the solid two-dimensional region.</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal" bullet="dot">When two portfolios have the same mean, the one with lower variance is said to <Font italic="true">dominate</Font> the one with the higher    variance. Similarly, when two portfolios have the same variance, the one with higher mean is said to <Font italic="true">dominate</Font> the</Text-field>
<Text-field style="Text" layout="Normal">   one with the lower mean. We assume that all investors are rational, that is, given a choice they will always invest in a dominating   portfolio.</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal">Now the<Font italic="true"> efficient frontier</Font><Font encoding="UTF-8"> of set \356\222\234 is defined to be the set of all mean-variance pairs in \356\222\234 which are not dominated by any other portfolios in the feasible set. Given a fixed variance or risk, the corresponding portfolio on the efficient frontier always provides the highest return. Or, given a fixed mean or reward, the corresponding portfolio on the efficient frontier always provides the lowest risk. This sounds very reasonable even intuitively because the goal of all rational investors is to maximize their return while taking the lowest possible amount of risk.  We call a point on the efficient frontier a</Font><Font italic="true"> mean-variance efficient point.</Font>
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<Text-field style="Heading 2" layout="Heading 2">Utility</Text-field>
<Text-field style="Text" layout="Normal"></Text-field><Title>
<Text-field style="Heading 2" layout="Heading 2"><Font style="Text">In many investments, the consequences correspond to the investor receiving a certain amount of money. The </Font><Hyperlink linktarget="Dictionary:utility,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">utility function</Font></Hyperlink><Font style="Text"> </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictRiM2Ji1GLDYlUSJVRicvJSdpdGFsaWNHUSV0cnVlRicvJSxtYXRodmFyaWFudEdRJ2l0YWxpY0YnLUkjbW9HRiQ2LVEwJkFwcGx5RnVuY3Rpb247RicvRjhRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0ZCLyUpc3RyZXRjaHlHRkIvJSpzeW1tZXRyaWNHRkIvJShsYXJnZW9wR0ZCLyUubW92YWJsZWxpbWl0c0dGQi8lJ2FjY2VudEdGQi8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlEtSShtZmVuY2VkR0YkNiQtRiM2JC1GLDYlUSJYRidGNEY3Rj5GPkY+RitGPg==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictRiM2Ji1GLDYlUSJVRicvJSdpdGFsaWNHUSV0cnVlRicvJSxtYXRodmFyaWFudEdRJ2l0YWxpY0YnLUkjbW9HRiQ2LVEwJkFwcGx5RnVuY3Rpb247RicvRjhRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0ZCLyUpc3RyZXRjaHlHRkIvJSpzeW1tZXRyaWNHRkIvJShsYXJnZW9wR0ZCLyUubW92YWJsZWxpbWl0c0dGQi8lJ2FjY2VudEdGQi8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlEtSShtZmVuY2VkR0YkNiQtRiM2JC1GLDYlUSJYRidGNEY3Rj5GPkY+RitGPg==</Equation><Font style="Text"> simultaneously measures investors' satisfaction of receiving that amount of money and the risk-aversion associated with that amount. Generally speaking, the utility function is a increasing, concave down function.</Font></Text-field>
<Text-field style="Text" layout="Heading 2">Some commonly used utility functions are:</Text-field>
<Text-field style="Text" layout="Heading 2" bullet="dot">Log utility function: <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Heading 2" bullet="dot">Linear utility function: <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Heading 2" bullet="dot">Exponential utility function <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation> <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Heading 2" bullet="dot">Quadratic utility function: <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Heading 3" layout="Heading 3"><Font style="Text">The Quadratic utility function is really meaningful only in the range</Font> <Equation executable="false" style="Heading 3" input-equation="" display="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">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</Equation></Text-field></Title>
<Text-field style="Heading 2" layout="Heading 2">Quadratic Utility</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal">Suppose that a portfolio has a random wealth value of y.   Using the <Hyperlink linktarget="Dictionary:expected utility,Definition" hyperlink="true"><Font style="Dictionary Hyperlink">expected utility criterion</Font></Hyperlink>, on the quadratic utility function we can get:</Text-field>
<Text-field style="Text" layout="Normal"><Equation executable="false" style="2D Math" input-equation="" display="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">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzZpbi1JI21pR0YkNiVRIkVGJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRictSShtZmVuY2VkR0YkNiYtRiM2Ji1GLDYjUSFGJy1GIzYmLUYsNiVRIlVGJ0YvRjItSSNtb0dGJDYtUTAmQXBwbHlGdW5jdGlvbjtGJy9GM1Enbm9ybWFsRicvJSZmZW5jZUdRJmZhbHNlRicvJSpzZXBhcmF0b3JHRkovJSlzdHJldGNoeUdGSi8lKnN5bW1ldHJpY0dGSi8lKGxhcmdlb3BHRkovJS5tb3ZhYmxlbGltaXRzR0ZKLyUnYWNjZW50R0ZKLyUnbHNwYWNlR1EmMC4wZW1GJy8lJ3JzcGFjZUdGWS1GNjYkLUYjNiQtRiw2JVEieUYnRi9GMkZGRkZGRkY6RkZGRi8lJW9wZW5HUSJbRicvJSZjbG9zZUdRIl1GJy1GQzYtUTEmSW52aXNpYmxlVGltZXM7RidGRkZIRktGTUZPRlFGU0ZVRldGWi1GQzYtUSI9RidGRkZIRktGTUZPRlFGU0ZVL0ZYUSwwLjI3Nzc3NzhlbUYnL0ZlbkZqb0Zjb0YrLUY2NiYtRiM2LC1GLDYlUSNheUYnRi9GMkZjby1GQzYtUSgmbWludXM7RidGRkZIRktGTUZPRlFGU0ZVRmlvRltwRmNvLUkmbWZyYWNHRiQ2KC1JI21uR0YkNiRRIjFGJ0ZGLUZqcDYkUSIyRidGRi8lLmxpbmV0aGlja25lc3NHRlxxLyUrZGVub21hbGlnbkdRJ2NlbnRlckYnLyUpbnVtYWxpZ25HRmRxLyUpYmV2ZWxsZWRHRkotRiw2JVEiYkYnRi9GMkZjby1JJW1zdXBHRiQ2JUZqbkZdcS8lMXN1cGVyc2NyaXB0c2hpZnRHUSIwRidGOkZGRkZGXW9GYG9GOi1JJ21zcGFjZUdGJDYmLyUnaGVpZ2h0R1EmMC4wZXhGJy8lJndpZHRoR0ZZLyUmZGVwdGhHRmdyLyUqbGluZWJyZWFrR1EobmV3bGluZUYnRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmZvRmNvLUYjNiYtRiw2JVEjYUVGJ0YvRjItRjY2JkZobkZGRl1vRmBvRjpGRkZjb0ZjcEZjb0ZmcC1GLDYlUSNiRUYnRi9GMi1GNjYmLUYjNiZGOkZcckY6RkZGRkZdb0Zgb0Y6RmJyRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmNvRmZvRmNvRmFzRmRzRmNvLUZDNi1GZXBGRkZIRktGTUZPRlFGU0ZVRldGWkZjby1GNjYkLUYjNiZGOkZmcEY6RkZGRkZpcS1GNjYmLUYjNilGKy1GXXI2JS1GNjYmLUYjNiZGOi1GXXI2JUZqbkY6Rl9yRjpGRkZGRl1vRmBvLUYjNiRGXXFGRkZfci1GQzYtUScmcGx1cztGJ0ZGRkhGS0ZNRk9GUUZTRlUvRlhRLDAuMjIyMjIyMmVtRicvRmVuRmV1LUYsNiVRJFZhckYnRi9GMkZkc0Y6RkZGRkZdb0Zgb0ZG</Equation></Text-field>
<Text-field style="Text" layout="Normal"></Text-field><Title>
<Text-field style="Text" layout="Heading 2">Many people believe that a rational investor's goal is to maximize his expected utility of wealth.  The optimal portfolio maximizes this value with respect to all mean-variance pairs of the random wealth variable <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEieUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2JVEieUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy9GM1Enbm9ybWFsRic=</Equation>.  Therefore, the relationship between the efficient frontier and the utility function becomes an interesting question to look at.</Text-field>
<Text-field style="Text" layout="Heading 2">Because we need to minimize the variance and to maximize the expected value in the following expression:

     <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Heading 2">the optimal utility corresponds with the definition of the efficient frontier.   Therefore, the optimal utility must correspond to a mean-variance efficient point. 

Since <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>is concave down, by <Hyperlink linktarget="Dictionary:Jenseninequality" hyperlink="true"><Font style="Dictionary Hyperlink">Jensen's inequality</Font></Hyperlink>, <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>in words, the utility of expected wealth is greater than the expected utility.</Text-field></Title>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Heading 2" layout="Heading 2">Optimal Exponential Utility</Text-field>
<Text-field style="Text" layout="Title" alignment="left">Using the expected utility criterion on the exponential utility function we can get:
<Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation></Text-field>
<Text-field style="Text" layout="Title" alignment="left">To achieve maximum expected utility, we need to minimize the variance and to maximize the expected value.  Again, the optimal utility must correspond to a mean-variance efficient point.

We see that the expected utility approach is more specific than a traditional mean-variance approach since it specifies a unique optimal point out of the entire efficient frontier.</Text-field>
</Section>
<Section collapsed="false" MultipleChoiceAnswerIndex="-1" MultipleChoiceRandomizeChoices="false" TrueFalseAnswerIndex="-1" EssayAnswerRows="5" EssayAnswerColumns="60"><Title>
<Text-field style="Heading 1" layout="Heading 1">Efficient Frontier and Optimal Utility for a Portfolio of Two Securities</Text-field></Title>
<Text-field style="Text" layout="Normal">
Consider securities in Pepsi and Wal-Mart.   Specifically, <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIxRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIxRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==</Equation> is the average return and <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>is the variance on close-to-close returns on the Pepsi Bottling Group, symbol NYSE:PBG.from June 14, 2006 to September 13, 2006.  <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==</Equation> is the average return and <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSShtc3Vic3VwR0YkNictRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOEY7LyUxc3VwZXJzY3JpcHRzaGlmdEdRIjBGJy8lL3N1YnNjcmlwdHNoaWZ0R0ZBLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjgvJSZmZW5jZUdGNy8lKnNlcGFyYXRvckdGNy8lKXN0cmV0Y2h5R0Y3LyUqc3ltbWV0cmljR0Y3LyUobGFyZ2VvcEdGNy8lLm1vdmFibGVsaW1pdHNHRjcvJSdhY2NlbnRHRjcvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZYRjg=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSShtc3Vic3VwR0YkNictRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOEY7LyUxc3VwZXJzY3JpcHRzaGlmdEdRIjBGJy8lL3N1YnNjcmlwdHNoaWZ0R0ZBLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjgvJSZmZW5jZUdGNy8lKnNlcGFyYXRvckdGNy8lKXN0cmV0Y2h5R0Y3LyUqc3ltbWV0cmljR0Y3LyUobGFyZ2VvcEdGNy8lLm1vdmFibGVsaW1pdHNHRjcvJSdhY2NlbnRHRjcvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZYRjg=</Equation>is the variance on close-to-close returns on Wal-Mart Stores, symbol NYSE:WMT.from June 14, 2006 to September 13, 2006.   <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMTJGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMTJGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==</Equation>is the correlation between the two sets of returns from June 14, 2006 to September 13, 2006.</Text-field>
<Text-field style="Text" layout="Normal"></Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion2" pixel-width="900" pixel-height="300">#Pepsi and Walmart Returns

pepsi_returns := Vector([-0.26,0.68,-0.46,-0.08,-0.37,-0.61,0.16,0,-0.2,0.5,0.04,0.45,-0.02,0.14,-0.08,0.1,-0.54,-0.64,0.07,0.65,0.84,0.17,0.08,-0.15,-0.45,-0.45,-0.41,0.36,0.1,0.34,-0.03,-0.54,0.67,0.33,0.31,0.16,0.84,-2.19,-0.37,1.13,-0.23,-0.33,0.2,-0.68,-1.04,-0.06,-0.39,-0.28,-0.07,-0.37,0.13,-0.16,0.77,0.14,-0.13,0.12,-0.15,-0.21,0.41,-0.39,-0.06,-0.79,-0.16,-0.03]);
walmart_returns := Vector([0.01,0.57,0.77,1.18,0.14,-0.17,0.12,0.72,0.1,0.13,0.06,0.55,0.18,-0.06,-0.31,-0.02,-0.4,-0.14,0.2,0.05,-0.54,0.4,-0.2,0.99,-0.56,-0.36,-0.05,0.14,0.36,0.28,-0.41,0.04,0.92,-0.14,-0.99,0.24,0.71,-0.57,0.09,1.02,0.15,-0.03,-1.1,-0.98,-0.98,-0.05,0.18,-0.71,-0.3,-0.55,-0.59,-0.54,0.79,0.28,-0.43,0.13,-0.54,-0.42,0.47,0.16,-0.04,-0.35,0.94,0.18]);
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal">print(<Label label="L439" view="label" executable="true"></Label>); # input placeholder</Text-field>
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<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCErK103YGEhIzY=</Equation></Text-field>
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<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCIrSF9KX0QhIzU=</Equation></Text-field>
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="mean_walmart_returns := Statistics[Mean](walmart_returns); 1; variance_walmart_returns := Statistics[Variance](walmart_returns)" display="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">QyU+STVtZWFuX3dhbG1hcnRfcmV0dXJuc0c2Ii0mSStTdGF0aXN0aWNzRzYkJSpwcm90ZWN0ZWRHSShfc3lzbGliR0YlNiNJJU1lYW5HRiU2I0kwd2FsbWFydF9yZXR1cm5zR0YlIiIiPkk5dmFyaWFuY2Vfd2FsbWFydF9yZXR1cm5zR0YlLSZGKDYjSSlWYXJpYW5jZUdGJUYu</Equation></Text-field>
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="correl_pepsi_walmart := Statistics[Correlation](pepsi_returns, walmart_returns)" display="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">Pkk1Y29ycmVsX3BlcHNpX3dhbG1hcnRHNiItJkkrU3RhdGlzdGljc0c2JCUqcHJvdGVjdGVkR0koX3N5c2xpYkdGJDYjSSxDb3JyZWxhdGlvbkdGJDYkSS5wZXBzaV9yZXR1cm5zR0YkSTB3YWxtYXJ0X3JldHVybnNHRiQ=</Equation></Text-field>
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<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCIrInAuRUAlISM1</Equation></Text-field>
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<Text-field style="Text" layout="Normal"><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYkLUkjbWlHRiQ2I1EhRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYn">JSFH</Equation></Text-field>
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="mu1 := mean_pepsi_returns; 1; sigma1_squared := variance_pepsi_returns; 1; mu2 := mean_walmart_returns; 1; sigma2_squared := variance_walmart_returns; 1; rho12 := correl_pepsi_walmart" display="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">Qys+SSRtdTFHNiJJM21lYW5fcGVwc2lfcmV0dXJuc0dGJSIiIj5JL3NpZ21hMV9zcXVhcmVkR0YlSTd2YXJpYW5jZV9wZXBzaV9yZXR1cm5zR0YlRic+SSRtdTJHRiVJNW1lYW5fd2FsbWFydF9yZXR1cm5zR0YlRic+SS9zaWdtYTJfc3F1YXJlZEdGJUk5dmFyaWFuY2Vfd2FsbWFydF9yZXR1cm5zR0YlRic+SSZyaG8xMkdGJUk1Y29ycmVsX3BlcHNpX3dhbG1hcnRHRiU=</Equation></Text-field>
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<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEoJiM5NTY7MkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUS4wLjAxMTI1MDAwMDAwRidGOS8lK2ZvcmVncm91bmRHUShbMCwwLDBdRicvJSlyZWFkb25seUdGPUY5">JCIrKysrRDYhIzY=</Equation></Text-field>
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<Font encoding="UTF-8">Now we take a combination of these two assets to make a simple two-stock portfolio.  We will let a fraction or weight \316\261 of our total wealth purchase shares of Pepsi, and the remaining fraction </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYpLUkjbWlHRiQ2JVEjb3JGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjIvJSZmZW5jZUdGMS8lKnNlcGFyYXRvckdGMS8lKXN0cmV0Y2h5R0YxLyUqc3ltbWV0cmljR0YxLyUobGFyZ2VvcEdGMS8lLm1vdmFibGVsaW1pdHNHRjEvJSdhY2NlbnRHRjEvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZJLUYsNiVRJ3dlaWdodEYnRi9GMkY1LUkobWZlbmNlZEdGJDYkLUYjNiYtSSNtbkdGJDYkUSIxRidGMi1GNjYtUSgmbWludXM7RidGMkY5RjtGPUY/RkFGQ0ZFL0ZIUSwwLjI3Nzc3NzhlbUYnL0ZLRmZuLUYsNiVRKCZhbHBoYTtGJ0YvRjJGMkYyRjVGMg==">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</Equation>of our wealth purchase shares of Wal-Mart.  Our wealth initially is 

    <Equation executable="false" style="2D Math" input-equation="" display="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">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYwLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEiV0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21uR0YkNiRRIjBGJy9GOVEnbm9ybWFsRicvJS9zdWJzY3JpcHRzaGlmdEdGPi1JI21vR0YkNi1RMSZJbnZpc2libGVUaW1lcztGJ0Y/LyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0ZJLyUpc3RyZXRjaHlHRkkvJSpzeW1tZXRyaWNHRkkvJShsYXJnZW9wR0ZJLyUubW92YWJsZWxpbWl0c0dGSS8lJ2FjY2VudEdGSS8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlgtRkQ2LVEiPUYnRj9GR0ZKRkxGTkZQRlJGVC9GV1EsMC4yNzc3Nzc4ZW1GJy9GWkZpbkZDLUYwNiUtRiw2JVEpJmFscGhhO1dGJy9GNkZJRj9GO0ZBLUZENi1RJyZwbHVzO0YnRj9GR0ZKRkxGTkZQRlJGVC9GV1EsMC4yMjIyMjIyZW1GJy9GWkZlby1JKG1mZW5jZWRHRiQ2JC1GIzYmLUY8NiRRIjFGJ0Y/LUZENi1RKCZtaW51cztGJ0Y/RkdGSkZMRk5GUEZSRlRGZG9GZm8tRiw2JVEoJmFscGhhO0YnRmBvRj9GP0Y/RitGL0YrLUknbXNwYWNlR0YkNiYvJSdoZWlnaHRHUSYwLjBleEYnLyUmd2lkdGhHRlgvJSZkZXB0aEdGanAvJSpsaW5lYnJlYWtHUShuZXdsaW5lRidGK0Y/</Equation>   
and after one period the expected value of the wealth is 
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<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="mu := alpha*mu1+(1-alpha)*mu2:" display="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">QyY+SSNtdUc2IiwmKiZJJmFscGhhR0YlIiIiSSRtdTFHRiVGKUYpKiYsJkYpRilGKCEiIkYpSSRtdTJHRiVGKUYpRi0+SS5zaWdtYV9zcXVhcmVkR0YlLCgqJkYoIiIjSS9zaWdtYTFfc3F1YXJlZEdGJUYpRikqJkYsRjNJL3NpZ21hMl9zcXVhcmVkR0YlRilGKSosSSZyaG8xMkdGJUYpRihGKUYsRiktSSVzcXJ0RzYkJSpwcm90ZWN0ZWRHSShfc3lzbGliR0YlNiNGNEYpLUY6NiNGNkYpRilGLQ==</Equation></Text-field>
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation></Text-field>
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<Input>
<Text-field style="Text" layout="Normal"><Font encoding="UTF-8">The goal is to plot the reward versus the risk to visualize the results of owning a portfolio of these two securities.  Since both risk and reward are functions of \316\261, this is easily done as a parametric plot in \316\261.  From the parametric form of risk as quadratic in \316\261 and reward as linear in \316\261, it is clear that the parametric curve will be a parabola.  To plot the curve effectively, it helps to know the where the minimum in the risk-reward space occurs.
</Font>
One way to find the minimum is to solve the parametric expression for the parameter as a function of risk, substitute that expression in the expression for risk, differentiate and set the derivative equal to 0, and solve, and then back-solve to obtain the parameter where this occurs:
</Text-field>
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</Group><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion3" pixel-width="900" pixel-height="300">#Solve for alpha at min

alpha_at_min := 
    solve( 
        solve( 
            diff( 
                subs( alpha = 
                    solve( mu = mu_0, alpha), 
                    sigma_squared), 
            mu_0) 
        = 0, mu_0) 
    = mu, alpha);

</EC-CodeEditor>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEtYWxwaGFfYXRfbWluRicvJSdpdGFsaWNHUSV0cnVlRicvJSxtYXRodmFyaWFudEdRJ2l0YWxpY0YnLUkjbW9HRiQ2LVEjOj1GJy9GM1Enbm9ybWFsRicvJSZmZW5jZUdRJmZhbHNlRicvJSpzZXBhcmF0b3JHRj0vJSlzdHJldGNoeUdGPS8lKnN5bW1ldHJpY0dGPS8lKGxhcmdlb3BHRj0vJS5tb3ZhYmxlbGltaXRzR0Y9LyUnYWNjZW50R0Y9LyUnbHNwYWNlR1EsMC4yNzc3Nzc4ZW1GJy8lJ3JzcGFjZUdGTC1JI21uR0YkNiRRLTAuNTE4NTc1Njk1MEYnRjkvJStmb3JlZ3JvdW5kR1EoWzAsMCwwXUYnLyUpcmVhZG9ubHlHRj1GOQ==">JCIrXXB2Jj0mISM1</Equation></Text-field>
</Output>
<Text-field style="Text" layout="Normal"></Text-field>
<Text-field style="Text" layout="Normal">As common in finance and economics, we plot the feasible set of risk-reward points on Cartesian axes with the risk on the horizontal axis, and the reward on the vertical axis.  Note that the axes are scaled in order to make the features of the feasible set visible.  The feasible set is the curve illustrated below.  The efficient frontier is the thicker line with higher reward.  Looking at the portfolio return and variance, we see that if an investor seeks low variances, the investor will sacrifice return.
</Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion4" pixel-width="900" pixel-height="250">#Plot

non_ef := plot( [sigma_squared, mu, alpha = alpha_at_min..1.5],labels = [&quot;risk&quot;, &quot;reward&quot;], view=[-2.0..2.0, -0.2 .. 0.2], thickness= 1, color =black ):
ef := plot( [sigma_squared, mu, alpha = -1.5..alpha_at_min],labels = [&quot;risk&quot;, &quot;reward&quot;], view=[-2.0..2.0, -0.2 .. 0.2], thickness= 2, color =black ):
plots[display]([ef, non_ef]);

</EC-CodeEditor>
<Output>
<Text-field style="Maple Plot" layout="Maple Plot"><Plot height="400" type="two-dimensional" width="400" gridlinevisibility="1" 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</Output>
<Text-field style="Text" layout="Normal"></Text-field></CodeEditor-ExecGroup></CodeEditor-ExecGroup>
<Section collapsed="false" MultipleChoiceAnswerIndex="-1" MultipleChoiceRandomizeChoices="false" TrueFalseAnswerIndex="-1" EssayAnswerRows="5" EssayAnswerColumns="60"><Title>
<Text-field style="Heading 2" layout="Heading 2">Optimal Quadratic Utility</Text-field></Title>
<Group labelreference="L158" drawlabel="true">
<Input>
<Text-field style="Text" layout="Normal">The coefficients of the quadratic utility function below are chosen to illustrate the maximization of quadratic utility at a point on the efficient frontier.</Text-field>
<Text-field style="Text" layout="Normal"></Text-field>
</Input>
</Group><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion5" pixel-width="900" pixel-height="250">#Choose coefficients

a := 1.0; b := 0.20; W := 1.0;
expected_utility := 
    expand( 
      a*W*(1 + mu) - 
      (1/2)*b*( ( W*(1 + mu) )^2 + W^2*sigma_squared ) );
</EC-CodeEditor>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEiYUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUSQxLjBGJ0Y5LyUrZm9yZWdyb3VuZEdRKFswLDAsMF1GJy8lKXJlYWRvbmx5R0Y9Rjk=">JCIjNSEiIg==</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEiYkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUSUwLjIwRidGOS8lK2ZvcmVncm91bmRHUShbMCwwLDBdRicvJSlyZWFkb25seUdGPUY5">JCIjPyEiIw==</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEiV0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUSQxLjBGJ0Y5LyUrZm9yZWdyb3VuZEdRKFswLDAsMF1GJy8lKXJlYWRvbmx5R0Y9Rjk=">JCIjNSEiIg==</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="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">LCgkIisjKXlAPikpISM1IiIiSSZhbHBoYUc2IiQhKi8mKXlUKiEjNiokRiciIiMkISs8QCVcPiVGKw==</Equation></Text-field>
</Output>
<Text-field style="Text" layout="Normal"></Text-field><Presentation-Block>
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<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="utility_expected_wealth := expand(a*W*(1+mu)-(1/2)*(1*b)*(W*(1+mu))^2)" display="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">Pkk4dXRpbGl0eV9leHBlY3RlZF93ZWFsdGhHNiItSSdleHBhbmRHJSpwcm90ZWN0ZWRHNiMsJiooSSJhR0YkIiIiSSJXR0YkRiwsJkYsRixJI211R0YkRixGLEYsKiYtSSIqR0YnNiRGLEkiYkdGJEYsLUkiXkdGJzYkKiZGLUYsRi5GLCIiI0YsIyEiIkY5</Equation></Text-field>
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<Output>
<Text-field superscript="false" placeholder="false" executable="false" selection-placeholder="false" italic="false" size="12" bold="false" subscript="false" family="Times New Roman" opaque="false" underline="false" background="[255,255,255]" readonly="false" foreground="[0,0,0]" alignment="centred" firstindent="0" spacebelow="0" leftmargin="0" linespacing="0.0" initial="0" linebreak="space" rightmargin="0" bulletsuffix="" spaceabove="0" bullet="none" pagebreak-before="false"><Equation executable="false" style="2D Output" display="LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=">LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=</Equation></Text-field>
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<Group view="presentation" hide-input="true" hide-output="false" inline-output="false" labelreference="L461" drawlabel="true" redirect-source="L460">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal">print(<Label label="L460" view="label" executable="true"></Label>); # input placeholder</Text-field>
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<Text-field style="Text" layout="Normal"></Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion6" pixel-width="900" pixel-height="300">#Plots

p1 := plots[spacecurve]( { [sigma_squared,mu,0], 
                           [sigma_squared,mu,expected_utility]},
 alpha = alpha_at_min..2, color = black, thickness = 1,  axes = normal, 
 labels = [&quot;Risk&quot;, &quot;Reward&quot;, &quot;Exp Utility&quot;]):
 
p2 := plots[spacecurve]( { [sigma_squared,mu,0], 
                           [sigma_squared,mu,expected_utility]},
 alpha = -2..alpha_at_min, color = black, thickness = 2,  axes = normal):
 
p3 := plots[spacecurve]( [sigma_squared,mu,utility_expected_wealth],
 alpha = -2..2, color = grey, thickness = 1,  axes = normal):
 
p4 := plots[pointplot3d]({expected_utility_star}, symbol=box, symbolsize = 20, color = red):

p5 := plots[pointplot3d]({risk_reward_star}, symbol=box, symbolsize=20, color = blue):

plots[display](p1,p2,p3,p4,p5);

</EC-CodeEditor>
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<Text-field style="Text" layout="Normal"><Font encoding="UTF-8">This is a parametric plot of expected utility of the portfolio, and the risk and reward in terms of the parameter \316\261.  The efficient frontier is the thicker line, and the expected utility on the efficient frontier is also plotted with a thicker line.  The red box contains the point where the expected utility is maximized.  The blue box contains the risk-reward point where the maximum expected utility is contained.  The light gray spacecurve is the utility of expected wealth to illustrate that it is always greater than the expected utility.
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<Section collapsed="false" MultipleChoiceAnswerIndex="-1" MultipleChoiceRandomizeChoices="false" TrueFalseAnswerIndex="-1" EssayAnswerRows="5" EssayAnswerColumns="60"><Title>
<Text-field style="Heading 2" layout="Heading 2">Optimal Exponential Utility</Text-field></Title>
<Text-field style="Text" layout="Normal"></Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion7" pixel-width="900" pixel-height="200">#Choose coefficients

a := 1.8; b := 0.25; W := 1.0;
expected_utility := a - exp(-b*W*mu + (1/2)*b^2*( W^2*sigma_squared));

</EC-CodeEditor>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEiYUYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUSQxLjhGJ0Y5LyUrZm9yZWdyb3VuZEdRKFswLDAsMF1GJy8lKXJlYWRvbmx5R0Y9Rjk=">JCIjPSEiIg==</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEiYkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUSUwLjI1RidGOS8lK2ZvcmVncm91bmRHUShbMCwwLDBdRicvJSlyZWFkb25seUdGPUY5">JCIjRCEiIw==</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEiV0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUSQxLjBGJ0Y5LyUrZm9yZWdyb3VuZEdRKFswLDAsMF1GJy8lKXJlYWRvbmx5R0Y9Rjk=">JCIjNSEiIg==</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="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">LCYkIiM9ISIiIiIiLUkkZXhwRzYkJSpwcm90ZWN0ZWRHSShfc3lzbGliRzYiNiMsLEkmYWxwaGFHRiwkIitdN2BXOyEjNiQhKysrXTdHISM3RiYqJEYvIiIjJCIrITQmKWYoekY1KiQsJkYmRiZGL0YlRjckIis1aCl6WClGNSomRi9GJkY7RiYkIitTNytnTUY1RiU=</Equation></Text-field>
</Output>
<Text-field style="Text" layout="Normal"></Text-field><Presentation-Block>
<Group view="presentation" hide-input="false" hide-output="true" inline-output="false" labelreference="L467" drawlabel="true" redirect-target="L468">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="utility_expected_wealth := a-exp(-b*W*mu)" display="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">Pkk4dXRpbGl0eV9leHBlY3RlZF93ZWFsdGhHNiIsJkkiYUdGJCIiIi1JJGV4cEc2JCUqcHJvdGVjdGVkR0koX3N5c2xpYkdGJDYjLCQqKEkiYkdGJEYnSSJXR0YkRidJI211R0YkRichIiJGMw==</Equation></Text-field>
</Input>
<Output>
<Text-field superscript="false" placeholder="false" executable="false" selection-placeholder="false" italic="false" size="12" bold="false" subscript="false" family="Times New Roman" opaque="false" underline="false" background="[255,255,255]" readonly="false" foreground="[0,0,0]" alignment="centred" firstindent="0" spacebelow="0" leftmargin="0" linespacing="0.0" initial="0" linebreak="space" rightmargin="0" bulletsuffix="" spaceabove="0" bullet="none" pagebreak-before="false"><Equation executable="false" style="2D Output" display="LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=">LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=</Equation></Text-field>
</Output>
</Group>
<Group view="presentation" hide-input="true" hide-output="false" inline-output="false" labelreference="L468" drawlabel="true" redirect-source="L467">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal">print(<Label label="L467" view="label" executable="true"></Label>); # input placeholder</Text-field>
</Input>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="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">LCYkIiM9ISIiIiIiLUkkZXhwRzYkJSpwcm90ZWN0ZWRHSShfc3lzbGliRzYiNiMsJkkmYWxwaGFHRiwkIitdN2BXOyEjNiQhKysrXTdHISM3RiZGJQ==</Equation></Text-field>
</Output>
</Group></Presentation-Block><Presentation-Block>
<Group view="presentation" hide-input="false" hide-output="true" inline-output="false" labelreference="L469" drawlabel="true">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="alpha_star := solve(diff(expected_utility, alpha) = 0, alpha):" display="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">Qyg+SSthbHBoYV9zdGFyRzYiLUkmc29sdmVHNiQlKnByb3RlY3RlZEdJKF9zeXNsaWJHRiU2JC8tSSVkaWZmR0YpNiRJMWV4cGVjdGVkX3V0aWxpdHlHRiVJJmFscGhhR0YlIiIhRjEhIiI+STZleHBlY3RlZF91dGlsaXR5X3N0YXJHRiUtSSVzdWJzR0YpNiQvRjFGJDclSS5zaWdtYV9zcXVhcmVkR0YlSSNtdUdGJUYwRjM+STFyaXNrX3Jld2FyZF9zdGFyR0YlLUY3NiRGOTclRjtGPEYyRjM=</Equation></Text-field>
</Input>
</Group></Presentation-Block><Presentation-Block>
<Group view="presentation" hide-input="false" hide-output="true" inline-output="false" labelreference="L470" drawlabel="true">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation></Text-field>
</Input>
</Group></Presentation-Block><Presentation-Block><CodeEditor-ExecGroup view="presentation" hide-input="false" hide-output="true" inline-output="false" display="button"><EC-CodeEditor id="CodeEditRegion8" pixel-width="900" pixel-height="300">#Plots

p1 := plots[spacecurve]( { [sigma_squared,mu,0], 
                           [sigma_squared,mu,expected_utility]},
 alpha = alpha_at_min..2, color = black, thickness = 1,  axes = normal, 
 labels = [&quot;Risk&quot;, &quot;Reward&quot;, &quot;Exp Utility&quot;]):
 
p2 := plots[spacecurve]( { [sigma_squared,mu,0], 
                           [sigma_squared,mu,expected_utility]},
 alpha = -2..alpha_at_min, color = black, thickness = 2,  axes = normal):
 
p3 := plots[spacecurve]( [sigma_squared,mu,utility_expected_wealth],
 alpha = -2..2, color = grey, thickness = 1,  axes = normal):
 
p4 := plots[pointplot3d]({expected_utility_star}, symbol=box, symbolsize = 20, color = red):

p5 := plots[pointplot3d]({risk_reward_star}, symbol=box, symbolsize=20, color = blue):

plots[display](p1, p2,p3,p4,p5);

</EC-CodeEditor>
<Output>
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<Section collapsed="false" MultipleChoiceAnswerIndex="-1" MultipleChoiceRandomizeChoices="false" TrueFalseAnswerIndex="-1" EssayAnswerRows="5" EssayAnswerColumns="60"><Title>
<Text-field style="Heading 1" layout="Heading 1">Case of Three Securities
<Font style="Text">Consider securities in Pepsi, Wal-Mart and Honda.   Specifically, </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIxRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIxRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==</Equation><Font style="Text"> is the average return and </Font><Equation executable="false" style="2D Math" input-equation="" 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style="Text">is the variance on close-to-close returns on the Pepsi Bottling Group, symbol NYSE:PBG.from June 14, 2006 to September 13, 2006.  </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==</Equation><Font style="Text"> is the average return and </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSShtc3Vic3VwR0YkNictRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOEY7LyUxc3VwZXJzY3JpcHRzaGlmdEdRIjBGJy8lL3N1YnNjcmlwdHNoaWZ0R0ZBLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjgvJSZmZW5jZUdGNy8lKnNlcGFyYXRvckdGNy8lKXN0cmV0Y2h5R0Y3LyUqc3ltbWV0cmljR0Y3LyUobGFyZ2VvcEdGNy8lLm1vdmFibGVsaW1pdHNHRjcvJSdhY2NlbnRHRjcvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZYRjg=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSShtc3Vic3VwR0YkNictRiw2JVEoJnNpZ21hO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIyRidGOEY7LyUxc3VwZXJzY3JpcHRzaGlmdEdRIjBGJy8lL3N1YnNjcmlwdHNoaWZ0R0ZBLUkjbW9HRiQ2LVExJkludmlzaWJsZVRpbWVzO0YnRjgvJSZmZW5jZUdGNy8lKnNlcGFyYXRvckdGNy8lKXN0cmV0Y2h5R0Y3LyUqc3ltbWV0cmljR0Y3LyUobGFyZ2VvcEdGNy8lLm1vdmFibGVsaW1pdHNHRjcvJSdhY2NlbnRHRjcvJSdsc3BhY2VHUSYwLjBlbUYnLyUncnNwYWNlR0ZYRjg=</Equation><Font style="Text">is the variance on close-to-close returns on Wal-Mart Stores, symbol NYSE:WMT.from June 14, 2006 to September 13, 2006.   </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIzRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVElJm11O0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtbkdGJDYkUSIzRidGOC8lL3N1YnNjcmlwdHNoaWZ0R1EiMEYnRitGOA==</Equation><Font style="Text"> is the average return and </Font><Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation><Font style="Text">is the variance on close-to-close returns on Honda, symbol NYSE: HMC.from June 14, 2006 to September 13, 2006.  </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMTJGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMTJGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==</Equation><Font style="Text">is the correlation between Pepsi returns and Wal-Mart returns from June 14, 2006 to September 13, 2006.   </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMTNGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMTNGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==</Equation><Font style="Text">is the correlation between Pepsi returns and Honda returns from June 14, 2006 to September 13, 2006.   </Font><Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMjNGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYmLUkjbWlHRiQ2I1EhRictSSVtc3ViR0YkNiUtRiw2JVEmJnJobztGJy8lJ2l0YWxpY0dRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnLUkjbW5HRiQ2JFEjMjNGJ0Y4LyUvc3Vic2NyaXB0c2hpZnRHUSIwRictSSNtb0dGJDYtUTEmSW52aXNpYmxlVGltZXM7RidGOC8lJmZlbmNlR0Y3LyUqc2VwYXJhdG9yR0Y3LyUpc3RyZXRjaHlHRjcvJSpzeW1tZXRyaWNHRjcvJShsYXJnZW9wR0Y3LyUubW92YWJsZWxpbWl0c0dGNy8lJ2FjY2VudEdGNy8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHRlZGOA==</Equation><Font style="Text">is the correlation between  Wal-Mart returns and Honda returns from June 14, 2006 to September 13, 2006.</Font></Text-field></Title>
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<Text-field style="Heading 2" layout="Heading 2">Example: Returns on Wal-Mart and Honda</Text-field></Title>
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<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="mean_honda_returns := Statistics[Mean](honda_returns); 1; variance_honda_returns := Statistics[Variance](honda_returns)" display="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">QyU+STNtZWFuX2hvbmRhX3JldHVybnNHNiItJkkrU3RhdGlzdGljc0c2JCUqcHJvdGVjdGVkR0koX3N5c2xpYkdGJTYjSSVNZWFuR0YlNiNJLmhvbmRhX3JldHVybnNHRiUiIiI+STd2YXJpYW5jZV9ob25kYV9yZXR1cm5zR0YlLSZGKDYjSSlWYXJpYW5jZUdGJUYu</Equation></Text-field>
</Input>
<Output>
<Text-field superscript="false" placeholder="false" executable="false" selection-placeholder="false" italic="false" size="12" bold="false" subscript="false" family="Times New Roman" opaque="false" underline="false" background="[255,255,255]" readonly="false" foreground="[0,0,0]" alignment="centred" firstindent="0" spacebelow="0" leftmargin="0" linespacing="0.0" initial="0" linebreak="space" rightmargin="0" bulletsuffix="" spaceabove="0" bullet="none" pagebreak-before="false"><Equation executable="false" style="2D Output" display="LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=">LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=</Equation></Text-field>
</Output>
</Group>
<Group view="presentation" hide-input="true" hide-output="false" inline-output="false" labelreference="L475" drawlabel="true" redirect-source="L474">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal">print(<Label label="L474" view="label" executable="true"></Label>); # input placeholder</Text-field>
</Input>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCIrK11QZlshIzY=</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCIrZDssOkUhIzU=</Equation></Text-field>
</Output>
</Group></Presentation-Block><Presentation-Block>
<Group view="presentation" hide-input="false" hide-output="true" inline-output="false" labelreference="L476" drawlabel="true" redirect-target="L477">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="correl_walmart_honda := Statistics[Correlation](walmart_returns, honda_returns); 1; correl_pepsi_honda := Statistics[Correlation](pepsi_returns, honda_returns)" display="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">QyU+STVjb3JyZWxfd2FsbWFydF9ob25kYUc2Ii0mSStTdGF0aXN0aWNzRzYkJSpwcm90ZWN0ZWRHSShfc3lzbGliR0YlNiNJLENvcnJlbGF0aW9uR0YlNiRJMHdhbG1hcnRfcmV0dXJuc0dGJUkuaG9uZGFfcmV0dXJuc0dGJSIiIj5JM2NvcnJlbF9wZXBzaV9ob25kYUdGJS1GJzYkSS5wZXBzaV9yZXR1cm5zR0YlRjA=</Equation></Text-field>
</Input>
<Output>
<Text-field superscript="false" placeholder="false" executable="false" selection-placeholder="false" italic="false" size="12" bold="false" subscript="false" family="Times New Roman" opaque="false" underline="false" background="[255,255,255]" readonly="false" foreground="[0,0,0]" alignment="centred" firstindent="0" spacebelow="0" leftmargin="0" linespacing="0.0" initial="0" linebreak="space" rightmargin="0" bulletsuffix="" spaceabove="0" bullet="none" pagebreak-before="false"><Equation executable="false" style="2D Output" display="LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=">LUkjbWlHNiMvSSttb2R1bGVuYW1lRzYiSSxUeXBlc2V0dGluZ0dJKF9zeXNsaWJHRic2JVE1b3V0cHV0fnJlZGlyZWN0ZWQuLi5GJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRic=</Equation></Text-field>
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<Group view="presentation" hide-input="true" hide-output="false" inline-output="false" labelreference="L477" drawlabel="true" redirect-source="L476">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal">print(<Label label="L476" view="label" executable="true"></Label>); # input placeholder</Text-field>
</Input>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCIrKWUobydmJCEjNQ==</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output">JCIrNWpjO1YhIzU=</Equation></Text-field>
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</Group></Presentation-Block></CodeEditor-ExecGroup>
<Group labelreference="L244" drawlabel="true">
<Input>
<Text-field prompt="&gt; " style="Maple Input" layout="Normal"><Equation executable="true" style="2D Input" input-equation="mu1 := mean_pepsi_returns; 1; sigma1_squared := variance_pepsi_returns; 1; mu2 := mean_walmart_returns; 1; sigma2_squared := variance_walmart_returns; 1; mu3 := mean_honda_returns; 1; sigma3_squared := variance_honda_returns; 1; rho12 := correl_pepsi_walmart; 1; rho13 := correl_walmart_honda; 1; rho23 := correl_pepsi_honda" display="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">QzM+SSRtdTFHNiJJM21lYW5fcGVwc2lfcmV0dXJuc0dGJSIiIj5JL3NpZ21hMV9zcXVhcmVkR0YlSTd2YXJpYW5jZV9wZXBzaV9yZXR1cm5zR0YlRic+SSRtdTJHRiVJNW1lYW5fd2FsbWFydF9yZXR1cm5zR0YlRic+SS9zaWdtYTJfc3F1YXJlZEdGJUk5dmFyaWFuY2Vfd2FsbWFydF9yZXR1cm5zR0YlRic+SSRtdTNHRiVJM21lYW5faG9uZGFfcmV0dXJuc0dGJUYnPkkvc2lnbWEzX3NxdWFyZWRHRiVJN3ZhcmlhbmNlX2hvbmRhX3JldHVybnNHRiVGJz5JJnJobzEyR0YlSTVjb3JyZWxfcGVwc2lfd2FsbWFydEdGJUYnPkkmcmhvMTNHRiVJNWNvcnJlbF93YWxtYXJ0X2hvbmRhR0YlRic+SSZyaG8yM0dGJUkzY29ycmVsX3BlcHNpX2hvbmRhR0Yl</Equation><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYlLUkjbWlHRiQ2I1EhRicvJStleGVjdXRhYmxlR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRic=">JSFH</Equation><Equation executable="true" style="2D Input" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYnLUkjbWlHRiQ2I1EhRictRiM2JUYrLyUrZXhlY3V0YWJsZUdRJmZhbHNlRicvJSxtYXRodmFyaWFudEdRJ25vcm1hbEYnRitGMUY0">NiI=</Equation></Text-field>
</Input>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="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">JCErK103YGEhIzY=</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEvc2lnbWExX3NxdWFyZWRGJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRictSSNtb0dGJDYtUSM6PUYnL0YzUSdub3JtYWxGJy8lJmZlbmNlR1EmZmFsc2VGJy8lKnNlcGFyYXRvckdGPS8lKXN0cmV0Y2h5R0Y9LyUqc3ltbWV0cmljR0Y9LyUobGFyZ2VvcEdGPS8lLm1vdmFibGVsaW1pdHNHRj0vJSdhY2NlbnRHRj0vJSdsc3BhY2VHUSwwLjI3Nzc3NzhlbUYnLyUncnNwYWNlR0ZMLUkjbW5HRiQ2JFEtMC4yNTUyMzE1MjI5RidGOS8lK2ZvcmVncm91bmRHUShbMCwwLDBdRicvJSlyZWFkb25seUdGPUY5">JCIrSF9KX0QhIzU=</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEoJiM5NTY7MkYnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUS4wLjAxMTI1MDAwMDAwRidGOS8lK2ZvcmVncm91bmRHUShbMCwwLDBdRicvJSlyZWFkb25seUdGPUY5">JCIrKysrRDYhIzY=</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEvc2lnbWEyX3NxdWFyZWRGJy8lJ2l0YWxpY0dRJXRydWVGJy8lLG1hdGh2YXJpYW50R1EnaXRhbGljRictSSNtb0dGJDYtUSM6PUYnL0YzUSdub3JtYWxGJy8lJmZlbmNlR1EmZmFsc2VGJy8lKnNlcGFyYXRvckdGPS8lKXN0cmV0Y2h5R0Y9LyUqc3ltbWV0cmljR0Y9LyUobGFyZ2VvcEdGPS8lLm1vdmFibGVsaW1pdHNHRj0vJSdhY2NlbnRHRj0vJSdsc3BhY2VHUSwwLjI3Nzc3NzhlbUYnLyUncnNwYWNlR0ZMLUkjbW5HRiQ2JFEtMC4yNzA2NTU1NTU2RidGOS8lK2ZvcmVncm91bmRHUShbMCwwLDBdRicvJSlyZWFkb25seUdGPUY5">JCIrY2JiMUYhIzU=</Equation></Text-field>
</Output>
<Output>
<Text-field style="2D Output" layout="Maple Output"><Equation executable="false" style="2D Output" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYoLUkjbWlHRiQ2JVEoJiM5NTY7M0YnLyUnaXRhbGljR1EldHJ1ZUYnLyUsbWF0aHZhcmlhbnRHUSdpdGFsaWNGJy1JI21vR0YkNi1RIzo9RicvRjNRJ25vcm1hbEYnLyUmZmVuY2VHUSZmYWxzZUYnLyUqc2VwYXJhdG9yR0Y9LyUpc3RyZXRjaHlHRj0vJSpzeW1tZXRyaWNHRj0vJShsYXJnZW9wR0Y9LyUubW92YWJsZWxpbWl0c0dGPS8lJ2FjY2VudEdGPS8lJ2xzcGFjZUdRLDAuMjc3Nzc3OGVtRicvJSdyc3BhY2VHRkwtSSNtbkdGJDYkUS4wLjA0ODU5Mzc1MDAwRidGOS8lK2ZvcmVncm91bmRHUShbMCwwLDBdRicvJSlyZWFkb25seUdGPUY5">JCIrK11QZlshIzY=</Equation></Text-field>
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<Text-field style="Text" layout="Normal"><Font encoding="UTF-8">Now we take a combination of these assets to make a three-stock portfolio.  We will let a fraction or weight \316\261 of our total wealth purchase shares of Pepsi, a fraction \316\262 of our total wealth purchase shares of Wal-Mart and the remaining fraction </Font><Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>of our wealth purchase shares of Honda.  Our wealth initially is 

    <Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>   
and after one period the expected value of the wealth is 
<Equation executable="false" style="2D Math" input-equation="" display="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">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</Equation>In fact, we can even allow <Equation executable="false" style="2D Math" input-equation="" display="LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYpLUkjbWlHRiQ2I1EhRictRiw2JVEoJmFscGhhO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtb0dGJDYtUSIsRidGNS8lJmZlbmNlR0Y0LyUqc2VwYXJhdG9yR1EldHJ1ZUYnLyUpc3RyZXRjaHlHRjQvJSpzeW1tZXRyaWNHRjQvJShsYXJnZW9wR0Y0LyUubW92YWJsZWxpbWl0c0dGNC8lJ2FjY2VudEdGNC8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHUSwwLjMzMzMzMzNlbUYnLUY5Ni1RMSZJbnZpc2libGVUaW1lcztGJ0Y1RjwvRj9GNEZBRkNGRUZHRklGSy9GT0ZNLUYsNiVRJyZiZXRhO0YnRjJGNUZRRjU=">LUklbXJvd0c2Iy9JK21vZHVsZW5hbWVHNiJJLFR5cGVzZXR0aW5nR0koX3N5c2xpYkdGJzYpLUkjbWlHRiQ2I1EhRictRiw2JVEoJmFscGhhO0YnLyUnaXRhbGljR1EmZmFsc2VGJy8lLG1hdGh2YXJpYW50R1Enbm9ybWFsRictSSNtb0dGJDYtUSIsRidGNS8lJmZlbmNlR0Y0LyUqc2VwYXJhdG9yR1EldHJ1ZUYnLyUpc3RyZXRjaHlHRjQvJSpzeW1tZXRyaWNHRjQvJShsYXJnZW9wR0Y0LyUubW92YWJsZWxpbWl0c0dGNC8lJ2FjY2VudEdGNC8lJ2xzcGFjZUdRJjAuMGVtRicvJSdyc3BhY2VHUSwwLjMzMzMzMzNlbUYnLUY5Ni1RMSZJbnZpc2libGVUaW1lcztGJ0Y1RjwvRj9GNEZBRkNGRUZHRklGSy9GT0ZNLUYsNiVRJyZiZXRhO0YnRjJGNUZRRjU=</Equation>to be negative or greater than 1, which amounts to short-selling one or another of the securities.  <Font italic="true">Short-selling</Font> is borrowing a security from a broker and selling it, with the understanding that it must later be bought back (hopefully at a lower price) and returned to the broker.  Mathematically, this amounts to owning a negative amount of the security.

First we look at combinations of just two of the three securities alone, setting the proportion devoted to the third to be zero.  This gives a set of three two-stock portfolio curves.
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</Group><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion10" pixel-width="900" pixel-height="300">#Portfolio Curves

risk_reward_curves := plot( 
    [ [sigma12_squared, mu12, alpha = -2..2],
      [sigma23_squared, mu23, alpha = -2..2],
      [sigma13_squared, mu13, alpha = -2..2]
    ],
      labels = [&quot;risk&quot;, &quot;reward&quot;], view=[-2.5..2.5, -0.2 .. 0.2], thickness= 1, 
      color = [red, blue, green] ):
t1 := plots[textplot]( 
  [ [ subs(alpha=2, sigma12_squared), subs(alpha=2, mu12), `Pepsi and Wal-Mart`],
    [ subs(alpha=2, sigma23_squared), subs(alpha=2, mu23), `Wal-Mart and Honda`],
    [ subs(alpha=2, sigma13_squared), subs(alpha=2, mu13), `Pepsi and Honda`] ],
align = {BELOW, RIGHT}):
plots[display](risk_reward_curves, t1);
</EC-CodeEditor>
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Next we take a combination of all three securities, again allowing short selling.  For a given return, we find the minimum risk in this combination. The minimum risk for given reward will be on the efficient frontier.  We plot the efficient frontier, which will be be a parabola.   All feasible risk-reward pairs using the three securities will be on the interior of this parabolic region defined by the efficient frontier.  In particular the three curves of risk and reward defined by creating portfolios which omit one of the securities will lie in the feasible region.  All of this is in the diagram below.
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</Group><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion11" pixel-width="900" pixel-height="300">#Efficient Frontier

mu := alpha*mu1 + beta*mu2 + (1 - alpha - beta)*mu3:
sigma_squared := alpha^2*sigma1_squared + beta^2*sigma2_squared + (1 - alpha - beta)^2*sigma3_squared 
                 + rho12*alpha*beta*sqrt(sigma1_squared)*sqrt(sigma2_squared)
                 + rho23*beta*(1-alpha-beta)*sqrt(sigma2_squared)*sqrt(sigma3_squared)
                 + rho13*alpha*(1-alpha-beta)*sqrt(sigma1_squared)*sqrt(sigma3_squared):
beta_fixed_mu := solve( mu = mu_0, alpha):
risk_fixed_mu := subs( alpha = beta_fixed_mu, sigma_squared):
critical_beta_for_min_risk := solve( diff(risk_fixed_mu, beta) = 0, beta):
efficient_frontier := simplify( subs( beta = critical_beta_for_min_risk, risk_fixed_mu));

end_pt := solve( diff( efficient_frontier, mu_0)=0, mu_0):
ef := plot( [efficient_frontier, mu_0, mu_0=end_pt..1], 
      view=[-2.5..2.5, -0.2 .. 0.2], 
      thickness= 2, 
      color = black ):
non_ef := plot( [efficient_frontier, mu_0, mu_0=-1..end_pt], 
      view=[-2.5..2.5, -0.2 .. 0.2], 
      thickness= 1, 
      color = black ):
t1 := plots[textplot]( 
  [ [ subs(alpha=2, sigma12_squared), subs(alpha=2, mu12), `Pepsi and Wal-Mart`],
    [ subs(alpha=2, sigma23_squared), subs(alpha=2, mu23), `Wal-Mart and Honda`],
    [ subs(alpha=2, sigma13_squared), subs(alpha=2, mu13), `Pepsi and Honda`]
  ],
align = {BELOW, RIGHT}):
tef := plots[textplot]([1.3, 0.18, `Efficient frontier`], align = {ABOVE, LEFT}):
plots[display](ef, non_ef, risk_reward_curves, t1, tef);
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<Font encoding="UTF-8">Some comments are in order about this graph.  The feasible \356\222\234 set is the region inside the black curve.  The blue curve is the set of feasible points using only Pepsi and Wal-Mart, but no  Honda shares.  The red curve is the set of feasible points using only Wal-Mart and Honda, but no Pepsi.  The green curve is the set of feasible points using only Pepsi and Honda, but no Wal-Mart shares.  The feasible set using all three securities is slightly larger than any of these curves, because it allows spreading the risk and reward among all three securities.  Thus the black curve is slightly outside the green curve, although it is close for this particular set of returns and correlations.  The heavy black curve is the efficient frontier.  Close inspection shows that the heavy black curve, the efficient frontier, intersects the vertex of the blue curve and the green curve, indicating special combinations of just two of the three securities can be mean-variance efficient pairs.
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</Section>
<Section collapsed="false" MultipleChoiceAnswerIndex="-1" MultipleChoiceRandomizeChoices="false" TrueFalseAnswerIndex="-1" EssayAnswerRows="5" EssayAnswerColumns="60"><Title>
<Text-field style="Heading 2" layout="Heading 2">Optimal Quadratic Utility
<Font style="Text">The coefficients of the quadratic utility function below are chosen to illustrate the maximization of quadratic utility at a point on the efficient frontier.</Font></Text-field></Title>
<Text-field style="Text" layout="Normal"></Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion12" pixel-width="900" pixel-height="300">#Coefficients

a := 1.0; b := 0.2; W := 1.0;
expected_utility := 
    expand( 
      a*W*(1 + mu) - 
      (1/2)*b*( ( W*(1 + mu) )^2 + W^2*sigma_squared )
    );

</EC-CodeEditor>
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<Text-field style="Text" layout="Normal"></Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion13" pixel-width="900" pixel-height="300">#Plot

utility_surface := plot3d( a*W*(1 + mu_0) - (1/2)*b*( (W*(1 + mu_0))^2 + (1/2)*(W*v)^2), mu_0 = -0.2..0.2, v=efficient_frontier..2.0, axes = normal, shading=zhue, orientation=[20,55]):
ef := plots[spacecurve]([mu_0, efficient_frontier, 0], mu_0=end_pt..1, color=black, thickness=2):
ef_util := plots[spacecurve]([mu_0, efficient_frontier, a*W*(1 + mu_0) - (1/2)*b*((W*(1 + mu_0))^2 + (1/2)*(W*efficient_frontier)^2)], mu_0=end_pt..1, color=black, thickness=4):
c1  := plots[spacecurve]( 
        [mu12, sigma12_squared, 0],
      alpha = -2..2, labels = [&quot;risk&quot;, &quot;reward&quot;, &quot;&quot;], view=[-0.2..0.2, -2 .. 2, 0.0..1.0], thickness= 1, color = red, axes = normal):
c2 := plots[spacecurve]( 
        [mu23, sigma23_squared, 0], alpha = -2..2, color = blue):
c3 := plots[spacecurve]( [ mu13, sigma13_squared, 0], alpha = -2..2, color = green):
alpha_beta_star := solve({diff(expected_utility, alpha)=0, diff(expected_utility, beta) = 0},[alpha, beta]):
expected_utility_star := subs( alpha_beta_star[1], [mu, sigma_squared,  expected_utility]):
risk_reward_star := subs( alpha_beta_star[1], [mu,sigma_squared,0]):
p2 := plots[pointplot3d]({expected_utility_star}, symbol=box, symbolsize = 20, color = red):
p3 := plots[pointplot3d]({risk_reward_star}, symbol=box, symbolsize=20, color = blue):

plots[display]( [c1, c2, c3, ef, ef_util, utility_surface, p2, p3]);
</EC-CodeEditor>
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<Font encoding="UTF-8">This is a parametric plot of expected utility of the portfolio, and the risk and reward in terms of the parameters \316\261. and \316\262.  The efficient frontier is the thicker line, and the expected utility on the efficient frontier is also plotted with a thicker line.  The red box contains the point where the expected quadratic utility is maximized.  The blue box contains the risk-reward point, i. e. the mean-variance efficient point, where the maximum expected quadratic utility is attained. 
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</Section>
<Section collapsed="false" MultipleChoiceAnswerIndex="-1" MultipleChoiceRandomizeChoices="false" TrueFalseAnswerIndex="-1" EssayAnswerRows="5" EssayAnswerColumns="60"><Title>
<Text-field style="Heading 2" layout="Heading 2">Optimal Exponential Utility</Text-field></Title>
<Text-field style="Text" layout="Normal"></Text-field><CodeEditor-ExecGroup view="presentation" display="button"><EC-CodeEditor id="CodeEditRegion14" pixel-width="900" pixel-height="300">#Plot Expected Exponential Utility

a := 1.8; b := 0.25; W := 1.0;
expected_utility := a - exp(-b*W*mu + (1/2)*b^2*( W^2*sigma_squared));

utility_surface := plot3d( a - exp(-b*W*mu_0 + (1/2)*b^2*( W^2*v^2)), mu_0 = -0.2..0.2, v=efficient_frontier..2.0, axes = normal, shading=zhue, orientation=[20,55]):
ef := plots[spacecurve]([mu_0, efficient_frontier, 0], mu_0=end_pt..1, color=black, thickness=2):
ef_util := plots[spacecurve]([mu_0, efficient_frontier, a - exp(-b*W*mu_0 + (1/2)*b^2*( W^2*efficient_frontier^2))], mu_0=end_pt..1, color=black, thickness=4):
c1  := plots[spacecurve]( 
        [mu12, sigma12_squared, 0], alpha = -2..2, labels = [&quot;risk&quot;, &quot;reward&quot;, &quot;&quot;], 
      view=[-0.2..0.2, -2 .. 2, 0.0..1.0], thickness= 1, color = red, axes = normal):
c2 := plots[spacecurve]( [mu23, sigma23_squared, 0], alpha = -2..2, color = blue):
c3 := plots[spacecurve]( [ mu13, sigma13_squared, 0],alpha = -2..2, color = green):
alpha_beta_star := fsolve({diff(expected_utility, alpha)=0, diff(expected_utility, beta) = 0},{alpha, beta}):
expected_utility_star := subs( alpha_beta_star, [mu, sigma_squared,  expected_utility]):
risk_reward_star := subs( alpha_beta_star, [mu,sigma_squared,0]):
p2 := plots[pointplot3d]({expected_utility_star}, symbol=box, symbolsize = 20, color = red):
p3 := plots[pointplot3d]({risk_reward_star}, symbol=box, symbolsize=20, color = blue):
plots[display]( [c1, c2, c3, ef, ef_util, utility_surface, p2, p3]);
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<Text-field style="Text" layout="Normal"><Font encoding="UTF-8">This is a parametric plot of expected exponential utility of the portfolio, and the risk and reward in terms of the parameters \316\261 and \316\262.  The efficient frontier is the thicker line, and the expected exponential utility on the efficient frontier is also plotted with a thicker line.  The red box contains the point where the expected utility is maximized.  The blue box contains the risk-reward point where the maximum expected utility is attained. 
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Legal Notice: The copyright for this application is owned by the authors. Neither Maplesoft nor the authors are responsible for any errors contained within and are not liable for any damages resulting from the use of this material. This application is intended for non-commercial, non-profit use only. Contact the authors for permission if you wish to use this application in for-profit activities.</Font></Text-field>
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