Funds available Rs 1,000,000. Assume 0% idle cash in the portfolio.

Correlation coefficient of Asset A and of B is 0.45

Standard deviation Asset A – 15%

Standard deviation Asset B – 17%

Standard deviation of Market – 13%

Expected return on Asset A – 18%

Expected return on Asset B – 22%

Correlation between Asset A and Market – 0.75

Correlation between Asset B and Market – 0.93 Expected return on Market – 13%

Market standard deviation – 11%

A market portfolio is defined as the one containing all the stocks in proportion to their share in total market capitalization.

 Create minimum-variance portfolio containing Asset A and Asset B and calculate its expected return and its variance.

Create a new portfolio (call it: Portnew) by combining risky assets with risk free assets such that the return of Portnew and variance of Portnew is same as that of market portfolio. Estimate the slope and intercept of Portnew.