1. What is the expected return and standard deviation of the portfolio that consists of $2,500 investment in stock X and $7,500 investment in stock B? (5 points)

2. What is the dollar amount of investments in each stock, expected return, and standard

deviation, on the minimum-variance portfolio? (5 points)

3. What is the dollar amount of investments in each stock, expected return, and standard

deviation, on the optimal portfolio? (5 points)

4. If you want to have a standard deviation of 3.86%, what should you do? (5 points)

Hint: You need to invest in a complete portfolio consisted of the optimal portfolio and the risk-

free asset. But what should be the weights of optimal portfolio and risk-free asset in your

complete portfolio in order to make the standard deviation 3.86%?

5. If you want to have an expected return of 4.0%, what should the weights of investment

in the complete portfolio? (5 points)

Hint: You need to invest in a complete portfolio consisted of the optimal portfolio and the risk-

free asset. Now, what should be the weights of optimal portfolio and risk-free asset in your

complete portfolio in order to generate the expected return of 4.0%?

6. If you want to have an expected return of 12.5%, what should the weights of

investment in the complete portfolio? (5 points)

Hint 1: You need to invest in a complete portfolio consisted of the optimal portfolio and the

risk-free asset. But what should be the weights of optimal portfolio and risk-free asset in

your complete portfolio in order to generate the expected return of 12.5%?

Hint 2: You need to borrow some money at the risk-free rate to invest in the optimal portfolio.

But how much do you need to borrow?

\begin{tabular}{|l|c|c|} \hline Security's Name & X & Y \\ \hline Expected Return (E.R.) & 12.5% & 4.0% \\ \hline Standard Deviation (S.D.) & 18.0% & 7.5% \\ \hline Risk Free Rate & \multicolumn{2}{|c|}{2.8%} \\ \hline Correlation Coefficient & \multicolumn{2}{|c|}{0.15} \\ \hline Investment & \multicolumn{2}{|c|}{$10,000} \\ \hline \end{tabular}