Two assets, X & Y, is below. Portfolios A through K have been constructed by varying the

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Question:

Two assets, X & Y, is below. Portfolios A through K have been constructed by varying the weights of Asset X and Asset Y, and the Expected Return and Standard Deviation is given for each.

a) Plot the portfolios on a graph (SD on x-axis & ER on y-axis) and label:

I.Minimum variance portfolio (MVP)

II.Inefficient portfolios

III.Efficient Portfolios.

b)As a risk averse investor (want to minimize risk), which portfolio(s) would you choose?

c)As an investor who is prepared to take on more risk (more tolerance for risk), which portfolio(s) would you choose?

Currently following 5 different stocks and need to issue a recommendation (buy, hold or sell) to your customers. The market return is 10%, with a standard deviation of 15%. The risk-free rate is 3%. The CAPM is assumed to hold.