Question: Security 1 Expected return is 10% and Standard Deviation is 5% Security 2 Expected return is 4% and Standard Deviation is 2% Assume a riskless

Security 1 Expected return is 10% and Standard Deviation is 5%

Security 2 Expected return is 4% and Standard Deviation is 2%

Assume a riskless rate of 10%, What is the optimal investment?

C. what is the optimal investment when p= 0? (That is, specify if you would chose, the risk free security, security 1, security 2 or a combination of securities (1) and (2). If you chose a combination of securities 1 and 2, please specify the weights in each). What is the E[R] and variance of your chosen portfolio?

D. Would your answer to (A), (B) or (C) change if the risk free rate was 5%? Be sure to specify your new position, if appropriate and any changes (i.e. up by x amount or down by x amount or no change). What is the E[R] and variance of your chosen portfolio?

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