You must allocate your wealth between two securities. Security 1 offers an expected return of 10% and has a standard deviation of 30%. Security 2 offers an expected return of 15% and has a standard deviation of 50%. The correlation between the returns on these two securities is 0.25.

a. Calculate the expected return and standard deviation for each of the following portfolios, and plot them on a graph:

% Security 1	% Security 2	E(R)	Standard Deviation
100	0
80	20
60	40
40	60
20	80
0	100

b. Based on your calculations in part (a), which portfolios are efficient and which are inefficient?

Answer rating: 100% (QA)

Security 1 Security 2 Expected return 10 15 Standard deviation 30 50 Correlation 025 Portfolio Secur... View the full answer