Question $2(27$ Marks$)$:

A portfolio consists of three securities Durian, Mulberry and Star with the following

parameters:

An investor can either invest in Portfolio $1$ or Portfolio $2$ in the proportion given below.

Required:

$($a$)$ Calculate the expected return and standard deviation for each of the two portfolios $(2$

Decimal Places$).$

$[21$ Marks$]$

$($b$)$ Explain the diversification effect and the relationship between correlation of assets.

$[6$ Marks$]$