Hi - in april 2020 question 9 the acted solutions use two different approaches in the solutions to part ii and part iii. in part ii they say the efficient frontier is Ep=xaEa+(1-xa)Eb and then have used the variance formula Vp to make sure the only unknown in Ep= is sigma.
in part iii they used the capital market line to find Ep.
Please could someone confirm if there is any reason i couldn't use the second method in both parts? i think the efficient frontier is just E_p such that only sigma is unknown on the left side - in which case both methods are ok? The capital market line method seems significantly quicker so it has made me wonder why we wouldn't just use that in the first place. Or am i messing up with my definition of the efficient frontier equation here?
This type of question has confused me because in the cmp some of the solutions give the efficient frontier is Vp= with a restriction for Ep ie the efficient frontier is Vp=.. where Ep>=, and sometimes we just give Ep. Does anyone have guidance about when to provide which please? Thank you
in part iii they used the capital market line to find Ep.
Please could someone confirm if there is any reason i couldn't use the second method in both parts? i think the efficient frontier is just E_p such that only sigma is unknown on the left side - in which case both methods are ok? The capital market line method seems significantly quicker so it has made me wonder why we wouldn't just use that in the first place. Or am i messing up with my definition of the efficient frontier equation here?
This type of question has confused me because in the cmp some of the solutions give the efficient frontier is Vp= with a restriction for Ep ie the efficient frontier is Vp=.. where Ep>=, and sometimes we just give Ep. Does anyone have guidance about when to provide which please? Thank you