LOS l: Discuss the structure of the minimum-variance frontier with a constraint against short sales.

Q1. Constrained optimization usually involves an additional constraint that:

A)   all asset class weights are non-negative.

B)   asset class weights add up to 1.

C)   all asset class weights are positive.

Q2. Constrained optimization usually involves an additional constraint that:

A)   each asset class weight should be positive.

B)   the weights of all asset classes add up to 1.

C)   short sales are not allowed.

Correct answer is C)

The weight of all asset classes adding up to one is part of un-constrained optimization. Constrained optimization has an additional constraint that the weights of all the asset classes should be non-negative or that there be no short sales. The weight of asset classes can be zero or positive.

LOS l: Discuss the structure of the minimum-variance frontier with a constraint against short sales. fficeffice" />

Q1. Constrained optimization usually involves an additional constraint that:

A)   all asset class weights are non-negative.

B)   asset class weights add up to 1.

C)   all asset class weights are positive.

Correct answer is A)

The weight of all asset classes adding up to one is part of un-constrained optimization. Constrained optimization has an additional constraint that the weights of all the asset classes should be non-negative.

Q2. Constrained optimization usually involves an additional constraint that:

A)   each asset class weight should be positive.

B)   the weights of all asset classes add up to 1.

C)   short sales are not allowed.

Correct answer is C)

The weight of all asset classes adding up to one is part of un-constrained optimization. Constrained optimization has an additional constraint that the weights of all the asset classes should be non-negative or that there be no short sales. The weight of asset classes can be zero or positive.