For the following questions (3-5) assume the following characteristic for two risky securities: 1 = 12% 2 = 24% and E(r1) = 15% and E(r2) = 20% 3. Create (find the weights) a portfolio with an expected return of 18%. If correlation of the two stocks is 0.5, compute that portfolio standard deviation. 4. If the two stocks have zero correlation, find a portfolio with a 16% standard deviation. Calculate that portfolio expected return and make sure it is an efficient portfolio (you will need to solve for the roots of a quadratic equation).

5. A portfolio is made of the following four assets (this information is available in an Excel file too). The table contains the assets annual statistics. A. Calculate the return and standard deviation of an equal weighted portfolio. B. Calculate the portfolio (weights) that will achieve the minimum variance. C. Calculate the portfolio (weights) that will achieve the lowest variance with a 22% portfolio rate of return. Assets Rate of Return Standard Deviation A 20.00% 25% B 24% 31% C 15% 20% D 12% 19% Correlation Matrix A B C D A 1 0.40 0.55 0.60 B 0.40 1 0.30 0.50 C 0.55 0.30 1 0.75 D 0.60 0.50 0.75 1

For the following questions (35) assume the following characteristic for two risky securities: 1=12%2=24% and E(r1)=15% and E(r2)=20% 3. Create (find the weights) a portfolio with an expected return of 18%. If correlation of the two stocks is 0.5, compute that portfolio standard deviation. 4. If the two stocks have zero correlation, find a portfolio with a 16% standard deviation. Calculate that portfolio expected return and make sure it is an efficient portfolio (you will need to solve for the roots of a quadratic equation). 5. A portfolio is made of the following four assets (this information is available in an Excel file too). The table contains the assets annual statistics. A. Calculate the return and standard deviation of an equal weighted portfolio. B. Calculate the portfolio (weights) that will achieve the minimum variance. C. Calculate the portfolio (weights) that will achieve the lowest variance with a 22% portfolio rate of return. For the following questions (35) assume the following characteristic for two risky securities: 1=12%2=24% and E(r1)=15% and E(r2)=20% 3. Create (find the weights) a portfolio with an expected return of 18%. If correlation of the two stocks is 0.5, compute that portfolio standard deviation. 4. If the two stocks have zero correlation, find a portfolio with a 16% standard deviation. Calculate that portfolio expected return and make sure it is an efficient portfolio (you will need to solve for the roots of a quadratic equation). 5. A portfolio is made of the following four assets (this information is available in an Excel file too). The table contains the assets annual statistics. A. Calculate the return and standard deviation of an equal weighted portfolio. B. Calculate the portfolio (weights) that will achieve the minimum variance. C. Calculate the portfolio (weights) that will achieve the lowest variance with a 22% portfolio rate of return