Case 4 (6 marks) The following table shows the expected return for each of the 3 stocks It also shows the set risk level of 1 1 ER Weights x 0 004078 0 y 0 00558 0 4507 z 0 00223 0 5492 1 ERP Variance Portfolio 0 00012 Std deviation Portfolio 0 011 4b) If this portfolio is optimal, then what can you conclude about its ERP 4c) How is the ERP at a specific level of risk achieved In other words, what allows ERP at a specific level of risk to differ from the expected portfolio return at a different level of risk

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Question: Case 4 (6 marks): The following table shows the expected return for each of the 3 stocks. It also shows the set risk level of

Case 4 (6 marks):

The following table shows the expected return for each of the 3 stocks. It also shows the set risk level of 1.1%.

	ER	Weights
x	0.004078	0
y	0.00558	0.4507
z	-0.00223	0.5492
		1
ERP		???
Variance Portfolio		0.00012
Std. deviation Portfolio		0.011

4b) If this portfolio is optimal, then what can you conclude about its ERP?

4c) How is the ERP at a specific level of risk achieved? In other words, what allows ERP at a specific level of risk to differ from the expected portfolio return at a different level of risk?

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