Security Anita has received an inheritance from her husband of KShs. 50 million. She intends to portfolio securities A and B. 

The performance of the two securities are summarized below:

Security Ri Correlation Coefficient of A and B

A 15% 4% -

B 10% 2% -1.0

Required:

(a) Compute the portfolio expected return and portfolio variance of Anita's portfolio based on optimality rule

AX_A=

(b) Suppose Anita undertakes asset rebalancing and opts for a portfolio consisting of risky asset and risk-free securities. The 91 days treasury bills rate was 5%. The proposed weights were 80:20 for A and risk-free security, respectively. Compute the portfolio expected

return and the portfolio variance.

Answer rating: 100% (QA)

The detailed answer for the above question is provi... View the full answer