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

1. You have to select a security for investment which one will you select?
2. If you have to obtain the Global minimum variance portfolio for each coefficient of correlation, what will be your investment fractions?
3. Which of the combinations which you obtain in b, give you a diversified portfolio. Check whether the conditions for diversification are satisfied.