Read the question carefully. Write your answers and show the steps of calculation in the space provided. Question 1 [19 marks in total] Given two assets with the following characteristics: E(RA) = 0.10 OA = 0.15 E(RB) = 0.0325 OB = 0.075 PA, B = -0.75 a. What are the weights of A and B that would yield a minimum variance for the portfolio? What are the expected return, E(Rmvp), and standard deviation, Omvp, of this minimum variance portfolio, MVP? (3 marks) 0-0 AB Hints: 0 or -20 +0%) 0 - PABOOB (oi-2P200,0,+0) and W, =1-A AB b. Suppose your client, Mr. X, is risk-averse with coefficient of risk aversion, A, equal to 8. The weights of A and B that would yield an optimal risky portfolio, R, with the highest utility are both 0.5. What are the expected return, E(RR), standard deviation, or, and utility level, Ur, of this optimal risky portfolio, R? (3 marks) [E(RA)-E(R)]+A[ob-008] = 0.5 AlcX+o-2018] We = 1 - WA=0.5 Hints: WA= c. According to the data given, the indifferent curve with maximum utility level is drawn in the below mean-variance plane. Draw the risky-asset investment opportunity set, the efficient frontier and various assets and portfolios according to the names in this question. Please FULLY label the diagram including the values of utility leve eights of A & B in various portfolios. (10 marks) Optimal Risky Portfolio 11% 10% Indifference curve of Mr. X with A-8 that touches the efficient frontier and U- 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% d. Describe what will happen to the old efficient frontier when a risk free asset is available. Describe where the new efficient frontier will lie. What is the name of this new efficient frontier. (3 marks) Read the question carefully. Write your answers and show the steps of calculation in the space provided. Question 1 [19 marks in total] Given two assets with the following characteristics: E(RA) = 0.10 OA = 0.15 E(RB) = 0.0325 OB = 0.075 PA, B = -0.75 a. What are the weights of A and B that would yield a minimum variance for the portfolio? What are the expected return, E(Rmvp), and standard deviation, Omvp, of this minimum variance portfolio, MVP? (3 marks) 0-0 AB Hints: 0 or -20 +0%) 0 - PABOOB (oi-2P200,0,+0) and W, =1-A AB b. Suppose your client, Mr. X, is risk-averse with coefficient of risk aversion, A, equal to 8. The weights of A and B that would yield an optimal risky portfolio, R, with the highest utility are both 0.5. What are the expected return, E(RR), standard deviation, or, and utility level, Ur, of this optimal risky portfolio, R? (3 marks) [E(RA)-E(R)]+A[ob-008] = 0.5 AlcX+o-2018] We = 1 - WA=0.5 Hints: WA= c. According to the data given, the indifferent curve with maximum utility level is drawn in the below mean-variance plane. Draw the risky-asset investment opportunity set, the efficient frontier and various assets and portfolios according to the names in this question. Please FULLY label the diagram including the values of utility leve eights of A & B in various portfolios. (10 marks) Optimal Risky Portfolio 11% 10% Indifference curve of Mr. X with A-8 that touches the efficient frontier and U- 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% d. Describe what will happen to the old efficient frontier when a risk free asset is available. Describe where the new efficient frontier will lie. What is the name of this new efficient frontier