== a) Let R and R2 be the returns for two securities with E[R] = 0.03 and E[R] = 0.08, V [R1] = 0.02, V [R2] = 0.05, and Cov [R1, R2] = -0.01. i) Plot the shape of the set of feasible mean-variance combinations of returns, assuming that the two securities are the only risky investment assets available. ii) If we want to minimise the risk, how much of our portfolio will be invested in security 1? Please show your calculations. b) Assume that the mean-variance opportunity set is constructed from only two risky assets, A and B. Their variance-covariance matrix is: (3 marks) (10 marks) = V [RA] Cov [RA, RB] Cov [RA, RB] [0.0081 0 V [RB] = 0 0.0025 Asset A has an expected return of 30% and Asset B has an expected return of 20%. Required i) Suppose investor I chooses his "market portfolio" to consist of 75% in asset A and 25% in asset B, whereas investor J chooses a different "market portfolio" with 50% in asset A and 50% in asset B. Given these facts, what beta will each investor calculate for asset A? ii) Given our answer to question c), which of the following statement is true and why? 1. Investor I will require a higher rate of return on asset A than will investor J. 2. They will both require the same return on asset A. 3. Investor J will require a higher rate of return on asset A than will investor (7 marks) I. (5 marks)