Question: Question 2 Suppose that there exist two securities (A and B) with annual expected returns equal to rA = 3% and rp = 5% and

Question 2 Suppose that there exist two securities (A and B)

Question 2 Suppose that there exist two securities (A and B) with annual expected returns equal to rA = 3% and rp = 5% and standard deviations equal to 0A = 7% and Og = 10% respectively. The correlation coefficient between the returns of these securities is p= -0.5. 2.1 What is the expected return and the standard deviation of an equally weighted portfolio consisting of the securities A and B? Describe every step of your calculations in detail. (15%) 2.2 What is the expected return and the standard deviation of a portfolio consisting of the securities A and B, if the relevant weights are chosen to minimize the risk of the portfolio? Present the minimisation problem and describe every step of your calculations in detail. (20%) 2.3 How could an investor maximize diversification benefits ? Critically discuss and explain in detail. (15%) Maximum 1500 words Question 2 Suppose that there exist two securities (A and B) with annual expected returns equal to rA = 3% and rp = 5% and standard deviations equal to 0A = 7% and Og = 10% respectively. The correlation coefficient between the returns of these securities is p= -0.5. 2.1 What is the expected return and the standard deviation of an equally weighted portfolio consisting of the securities A and B? Describe every step of your calculations in detail. (15%) 2.2 What is the expected return and the standard deviation of a portfolio consisting of the securities A and B, if the relevant weights are chosen to minimize the risk of the portfolio? Present the minimisation problem and describe every step of your calculations in detail. (20%) 2.3 How could an investor maximize diversification benefits ? Critically discuss and explain in detail. (15%) Maximum 1500 words

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