a. Using the data provided in problem 3, determine the return and risk for a portfolio made up of the following three stocks if you want to distribute your investment as follows: 20% in ADRE; 65% in MSFT and 15% in GOOG. b. How would the portfolio be affected if you distributed your investment in the following way: 30% in ADRE; 25% on MSFT and 45% on GOOG? c. Which of the two portfolios would a risk seeking investor prefer and why?

B M 1 Prob 3: 2 Year BIIB 3 D E F Return WMT ADRE MSFT GOOG 12.0% 7.5% 12.3% 13.1% 9.3% 4.3% 12.0% 16.2% 8.2% 8.1% 11.9% 15.7% 10.3% 9.2% 11.8% 18.2% 11.5% 6.1% 12.0% 19.3% H K L Variance WMT ADRE MSFT GOOG BIIB 8.5% 0.0303% 0.0021% 0.0009% 0.1156% 0.0010% 9.1% 0.0092% 0.0751% 0.0000% 0.0009% 0.0008% 9.0% 0.0424% 0.0112% 0.0001% 0.0064% 0.0003% 8.7% 0.0000% 0.0467% 0.0004% 0.0289% 0.0001% 8.8% 0.0154% 0.0088% 0.0000% 0.0784% 0.0000% 20x0 20x1 20x2 20x3 20x4 4 5 6 7 8 9 9 10 11 Expected return Standard deviation WMT ADRE MSFT GOOG 10.26% 7.04% 12.00% 16.50% 1.56% 1.90% 0.19% 2.40% BIIB 8.82% 0.24% 12 13 coefficient of variation (CV) 0.152 0.269 0.016 0.145 0.027 14 Prb 4: 15 a) 16 17 b) 18 A risk averse investor is an investor who minimize their risk per unit of return. Risk lover will prefer highest return irrespective of risk. 19 20 Risk averse will prefer MSFT as it has lowest CV and Risk lover will prefer GOOG as it has highest return. 21 22 B M 1 Prob 3: 2 Year BIIB 3 D E F Return WMT ADRE MSFT GOOG 12.0% 7.5% 12.3% 13.1% 9.3% 4.3% 12.0% 16.2% 8.2% 8.1% 11.9% 15.7% 10.3% 9.2% 11.8% 18.2% 11.5% 6.1% 12.0% 19.3% H K L Variance WMT ADRE MSFT GOOG BIIB 8.5% 0.0303% 0.0021% 0.0009% 0.1156% 0.0010% 9.1% 0.0092% 0.0751% 0.0000% 0.0009% 0.0008% 9.0% 0.0424% 0.0112% 0.0001% 0.0064% 0.0003% 8.7% 0.0000% 0.0467% 0.0004% 0.0289% 0.0001% 8.8% 0.0154% 0.0088% 0.0000% 0.0784% 0.0000% 20x0 20x1 20x2 20x3 20x4 4 5 6 7 8 9 9 10 11 Expected return Standard deviation WMT ADRE MSFT GOOG 10.26% 7.04% 12.00% 16.50% 1.56% 1.90% 0.19% 2.40% BIIB 8.82% 0.24% 12 13 coefficient of variation (CV) 0.152 0.269 0.016 0.145 0.027 14 Prb 4: 15 a) 16 17 b) 18 A risk averse investor is an investor who minimize their risk per unit of return. Risk lover will prefer highest return irrespective of risk. 19 20 Risk averse will prefer MSFT as it has lowest CV and Risk lover will prefer GOOG as it has highest return. 21 22