Question: The expected returns and standard deviation of returns for two securities are as follows: Security Z Security Y Expected Return 15% 35% Standard Deviation 20%

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


Security Z

Security Y

Expected Return

15%

35%

Standard Deviation

20%

40%

The correlation between the returns is +0.25.

a) Calculate the expected return and standard deviation for the following portfolios:

i) All in Z

ii) 0.75 in Z and 0.25 in Y

iii) 0.5 in Z and 0.5 in Y

iv) 0.25 in Z and 0.75 in Y

v) All in

b) Draw the mean-standard deviation frontier.

c) Which portfolios might not be held by an investor who likes high expected return and low standard deviation?

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