1. The following information is available on the percentage rates of return on various assets for the last three years. You determine that this is a sample which is representative of the data population for these securities.

Security

Share A

Share B

Market Government Bonds

Year 16% 32%

Year 218%22%

Year 3 60% 35% 20% 10%

50%10% 10% 10%

1. (a)Consider only shares A and B for this part. Compute the portfolio weights that yield the portfolio of A and B which has the lowest possible standard deviation. Then compute that portfolio's expected return and standard deviation. Hint: Write down the formula for this, then compute all the ingredients you require.
2. (b)What is the numerical equation for the Capital Markets Line in this situation?
3. (c)Do shares A and B plot on the Securities Market Line? Hint: you will have to determine Betas in order to figure this out.