HOMEWORK ASSIGNMENT 2 Risk & Return (chapters 2 & 3) Due date/time: 11 am, October 4, 2021 Show your work. You have the following information regarding rates of return for two stocks, B and C. Rate of Return Probability 0.1 0.4 0.4 0.1 Stock B 8 12 18 20 Stock C 5 10 20 25 Suppose you want to construct the following portfolios with stocks B&C: Portfolio Wb Wc Expected rate of return Standard deviation 0.0 1.0 29 0.1 0.9 0.2 0.8 4 0.3 0.7 5 0.4 0.5 0.5 7 0.6 0.4 8 0.7 0.3 9 0.8 0.2 10 0.9 0.1 11 1.0 0.0 0.6 Portfolio #2 consists of stocks B and C. The weight of stock B (Wb) in your portfolio is 10% and the weight of stock C (We) is 90%. Similarly, portfolio #8 consists of stocks B and C. The weight of stock B (Wb) in your portfolio is 70% and the weight of stock C (We) is 30%. 1. Calculate the expected rate of return and the risk (standard deviation) of each of the above 11 portfolios. 2. Plot the above 11 portfolios in the risk-return space. Note that the y-axis is expected rate of retum and x-axis is standard deviation. Each portfolio will be a point in the risk-return space. Join all those points to draw the graph. Check panel c of figure 3-2 on page 116 of your textbook. 3. Suppose you want to construct the minimum-risk (minimum-variance) portfolio with stocks B&C. Calculate the expected rate of return and the risk (standard deviation) of the minimum-risk portfolio