1.The Table below consists of 4 securities ( W, X, Y & Z) with their corresponding expected returns and risks. Use the concept of the dominance principle to determine if there is an evidence of mean-variance dominance between the four securities? Motivate your answer. [10]

Securities W X Y Z

Expected return 10% 15% 10% 16%

Risk 5 6 4 6

2.The risk of portfolio is given by _p^2=w_1^2 _1^2+w_2^2 _2^2+2_12 _1 _2 w_1 w_2

where _12 _1 _2= _12 , _(i=1)^2 w_i =1 and w_i0 for every i , i=1,2

Use the information in the Table below to answer the following questions (a-d);

Outcome Probability Rate of Return X Rate of Return Y

1 0.25 12 14

2 0.25 6 12

3 0.25 2 14

4 0.25 10 10

a)Calculate the expected return of portfolio with 20% in asset X and 80% in asset Y.[3]

b)Calculate the risk of this portfolio.[4]

c)Calculate the minimum variance portfolio weights.[4]

d)Show that the risk of a minimum variance portfolio is very closer to zero. [4]