a) You are given the following equally likely prices of security A that is trading on the Toronto Stock Exchange:

25.50

33.70

36.50

38.70

You are also given the following details of security B: mean price of 33.60, variance of 25.01, negative semi-variance of 20.8 and positive semi-variance of 32.5.

Compute for security A, the mean price, variance, negative semi-variance and the positive semi-variance. Compare and contrast these measures for securities A and B and comment on your results as well as the adequacy of variance as a measure of risk. (20 marks)

b) Can the composition of a frontier portfolio include any assets not on the frontier? Explain. (15 marks)

c) Illustrate, using diagrams, the relationship between correlation, covariance, variance and beta. Define, the correlation of the returns of a feasible asset with the returns of the market, as well as, the beta of that asset. (15 marks)