*THE SOLUTIONS FOR THE DROPDOWN ARE NUMBERS*

1. The two-asset case Aa Aa E The expected return for asset A is 5.50% with a standard deviation of 4.00%, and the expected return for asset B is 8.25% with a standard deviation of 2.00%. Based on your knowledge of efficient portfolios, fill in the blanks in the following table with the appropriate answers. Proportion of Portfolio in Security A Proportion of Portfolio in Security B Expected Portfolio Return Standard Deviation op (%) Case I (PAB = -0.5) Case II (PAB = 0.3) 4.0 5.50% 6.19% WA 1.00 0.75 0.50 0.25 0.00 WB 0.00 0.25 0.50 0.75 1.00 Case III (PAB = 0.7), 4.0 3.4 2.8 2.8 1.7 1.3 2.0 7.56% 8.25% 2.5 2.0 2.0 2.0 The minimum risk portfolio allocation to asset A within the portfolio for case II is . Therefore, you are better off selling asset B short including a third asset in the mix holding asset A in the portfolio 6. Calculating a beta coefficient for a single stock Aa Aa E Suppose that the standard deviation of returns for a single stock A is OA = 30%, and the standard deviation of the market return is OM = 10%. If the correlation between stock A and the market is PAM = 0.3, then the stock's beta is Is it reasonable to expect that the beta value estimated via the regression of stock A's returns against the market returns will equal the true value of stock A's beta? O No Yes Next, consider a two-asset portfolio consisting of stock A with wa = 75% and an expected return ra = 5% and a standard deviation of a = 4%, and stock B with rs = 8% and 8 = 10%. Assuming that the correlation between stocks A and B is zero, the expected return to the portfolio is , and the portfolio's standard deviation is Suppose that the correlation between stocks A and B is PAB = 1, instead of zero. Which of the following statements correctly reflects the new data? O The expected return to the portfolio is lower. The expected return to the portfolio is higher. The risk associated with the portfolio is the same as when the correlation is zero. The risk associated with the portfolio is higher. O