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7. (a) Refer to the table below. Based on the risk, return and covariance of the RSJ and QLR shares, display the weights of the minimum variance portfolio comprising only these two shares. (2 marks) Statistics based on monthly returns RSJ QLR Average 3.89% 3.92% Variance 1.37% 1.96% St. Deviation 11.70% 14.00% Covariance 0.00661 (b) Assume that the return and standard deviation of minimum variance portfolio in part (a) is 3.86% and 4.72%, respectively; and the return of a risk-free asset is 0.45% per month. Display the return and standard deviation of a portfolio combining in equal weights the minimum variance portfolio and a risk-free asset. (2 marks) (c) Based on the template below, construct a Data Table showing variations in the return and standard deviation of a portfolio combining the minimum variance portfolio with a risk-free asset in part (b) (no marks for entering individual formulae into the table). (2 marks) Data Table Return St. Deviation Minimum Variance Portfolio Risk-free asset Weights 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% (d) Draw the line of this graph of returns (on the vertical axis) and risk (on the horizontal axis) based on the table in part (c). (2 marks) 7. (a) Refer to the table below. Based on the risk, return and covariance of the RSJ and QLR shares, display the weights of the minimum variance portfolio comprising only these two shares. (2 marks) Statistics based on monthly returns RSJ QLR Average 3.89% 3.92% Variance 1.37% 1.96% St. Deviation 11.70% 14.00% Covariance 0.00661 (b) Assume that the return and standard deviation of minimum variance portfolio in part (a) is 3.86% and 4.72%, respectively; and the return of a risk-free asset is 0.45% per month. Display the return and standard deviation of a portfolio combining in equal weights the minimum variance portfolio and a risk-free asset. (2 marks) (c) Based on the template below, construct a Data Table showing variations in the return and standard deviation of a portfolio combining the minimum variance portfolio with a risk-free asset in part (b) (no marks for entering individual formulae into the table). (2 marks) Data Table Return St. Deviation Minimum Variance Portfolio Risk-free asset Weights 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% (d) Draw the line of this graph of returns (on the vertical axis) and risk (on the horizontal axis) based on the table in part (c). (2 marks)
