Topic: Harry Markovwitz approach and the efficient frontier.

Consider two risky assets with prices S1(0) = 100, S2(0) = 150

the price is:

S1(1), S2(1) =

(80, 250) with probability 2

8

(90, 150) with probability 4

8

(120, 200) with probability 2

Given the mean and standard deviation below

respectively:

1 = 95

2 = 187.50

1 = 15.00

2 = 41.46

a.) Compute the correlation coecient between the two assets

b.) Assuming :weight1 0.5 and weight2 0.5. On the (, )-plane, plot all the

portfolios attainable by investing in the risky assets. Highlight the two risky

assets on the plot (requires a graph)