Explain the following;

Security market line.

Risk premium.

Risk free interest rate.

Markey portfolio

8 Three assets have the following characteristics: Asset i Expected Volatility (o) return () 6% 7% 8% 15% 9% 20% The correlation between each pair of assets is 0.2. (i) In (u, o) space sketch the following frontiers of minimum variance portfolios in a single diagram: (a) The minimum variance portfolios obtained by positive holdings in each pair of assets. (b) The minimum variance portfolios obtained by unconstrained combinations of holdings in all three assets. (c) The minimum variance portfolios obtained by non-negative holdings in all three assets. [4] (ii) (a) You are given that the following two portfolios are on the unconstrained efficient frontier: Asset Portfolio I Portfolio 2 986 -.220 W N - 043 .661 -.029 .559 Calculate the composition of the two corner portfolios between the portfolio containing 100% asset I and 100% asset 3 that lie on the non- negative holdings constrained minimum variance frontier. Calculate the expected return on these two comer portfolios. [8] (b) Determine the non-negative holdings minimum variance portfolio given that the expected return on this portfolio is less than 6.146%