1. Suppose your target expected rate of return is 11%.

a. What is the lowest-volatility portfolio that provides that expected return?

b. What is the standard deviation of that portfolio?

c. What is the composition of that portfolio?

Asset Allocation Analysis: Risk and Return

            

Expected   Standard    Correlation

                             Return   Deviation     Coefficient    Covariance

Security 1                 0.08     0.12          0.3

Security 2     0.13            0.2

T-Bill                         0.05       0

Weight   Weight    Expected  Standard  Reward to

Security 1 Security 2ReturnDeviation   Volatility 

1                0

0.9         0.1

0.8       0.2

0.7        0.3

0.6        0.4

 

Answer rating: 100% (QA)

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