Consider the following 2 securities with:

-Expected rate of return on security 1 = 15%

-Expected rate of return on security 2 = 5%

-Variance of security 1 = 225

-Variance of security 2 = 100

Assume the coefficients of correlation are:

-1.0, -0.75, -0.5, 0, 0.5, 0.75, 1.0

Use Excel and answer the following questions:

a)You have to select a security for investment which one will you select?

b)If you have to obtain the Global minimum variance portfolio for each coefficient of correlation, what will be your investment fractions?

c)Which of the combinations which you obtain in b, give you a diversified portfolio. Check whether the conditions for diversification are satisfied.

d)For each coefficient of correlation draw the efficient frontier on the same graph.

Make sure that the fractions, which you have obtained for minimum variance portfolio in b, are part of your graph.

e)Does the graph obtain in d satisfies the answer which you have given in c.