. Here are some characteristics of two securities: Security 1: Expected Rturn= 0.1 Variance = 0.0025

Security 2: Expected Return= 0.16 Variance =0.0064

Answer the following questions: (a) Which security should an investor choose if she wants to (i) maximize expected returns, (ii) minimize risk (assume the investor cannot form a portfolio)? (b) Suppose the correlation of returns on the two securities is +1.0, what is the optimal combination of securities 1 and 2 that should be held by the investor whose objective is to minimize risk (assume short sales are not allowed)? (c) Suppose the correlation of returns is -1.0, what fraction of the investors net worth should be held in security 1 and in security 2 in order to produce a zero-risk portfolio? (d) What is the expected return on the portfolio in (c)? How does this compare with the riskless return on Treasury Bills of 10%? Would the investor want to invest in Treasury Bills?