Question: Security A Security B Expected return 15% 10% Standard Deviation 0.25 0.17 Beta 1.3 1.1 Correlation coefficient between A and B 0.5 Suppose you invest

	Security A	Security B
Expected return	15%	10%
Standard Deviation	0.25	0.17
Beta	1.3	1.1
Correlation coefficient between A and B	0.5

Suppose you invest 30% of your money in Security A and the rest in Security B

a) What is the expected return of the portfolio? (20 points)

b) What is the portfolio beta? (20 points)

c) What is the portfolio variance? Compare it with A and B variances. Is the portfolio variance larger or smaller than either A or B variances and why?

(40 points)

d) What percentage of your portfolio variance comes from the interaction component of total risk? (20 points)

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