Question: The expected returns and standard deviation of returns for two securities are as follows: Security A Security B Expected Return 8%15% Standard Deviation 14% 18%

  1. The expected returns and standard deviation of returns for two securities are as follows:

Security A Security B

Expected Return 8%15%

Standard Deviation 14% 18%

The correlation between the returns is + .15.

  1. Calculate the expected return and standard deviation for the following two-stock portfolios (assume all assets are invested in A or B):
  2. All in A.
  3. 80% in A
  4. 60% in A
  5. 40% in A
  6. 20% in A
  7. All in B
  8. Graph the Investment Opportunity Set.
  9. Which portfolio (of the choices above) is the minimum variance portfolio?
  10. If the risk-free rate is 4%, what is the Tangency Portfolio?
  11. Graph the Capital Allocation Line using the risk-free rate of 4% and the Tangency Portfolio from part (d).

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