1. Consider six securities, each with the following expected returns, betas (with respect to a market...

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1. Consider six securities, each with the following expected returns, betas (with respect to a market index) and variance of error terms 0 m 123 456 3 Hi 2958 g 12 10 15 10 5 20 Bi 1 0.75 1.5 1.2 0.8 1 o ei 2448825 20 15 20 20 a) If short selling is allowed, determine the optimal allocation across each security in the construction of the risky portfolio (6 marks). b) If short selling is not allowed determine the optimal allocation across each security in the construction of the risky portfolio. (6 marks). 1. Consider six securities, each with the following expected returns, betas (with respect to a market index) and variance of error terms 0 m 123 456 3 Hi 2958 g 12 10 15 10 5 20 Bi 1 0.75 1.5 1.2 0.8 1 o ei 2448825 20 15 20 20 a) If short selling is allowed, determine the optimal allocation across each security in the construction of the risky portfolio (6 marks). b) If short selling is not allowed determine the optimal allocation across each security in the construction of the risky portfolio. (6 marks).

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a When shortselling is allowed Using the given values we can calculate the portfolios expected retur... View the full answer