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Part A: 1. Consider six securities, each with the following expected returns, betas (with respect to a market index) and variance of error terms Bi
Part A: 1. Consider six securities, each with the following expected returns, betas (with respect to a market index) and variance of error terms Bi Mi 12 1 1 oei 20 25 2. 3 10 Boo Bor 0.75 1.5 1.2 15 20 4 5 0.8 20 8 10 6 1 25 5 rf o'm 20 a) If short selling is allowed, determine the optimal allocation across each security in the construction of the risky portfolio (6 marks). b) If short selling is not allowed determine the optimal allocation across each security in the construction of the risky portfolio. (6 marks). Part A: 1. Consider six securities, each with the following expected returns, betas (with respect to a market index) and variance of error terms Bi Mi 12 1 1 oei 20 25 2. 3 10 Boo Bor 0.75 1.5 1.2 15 20 4 5 0.8 20 8 10 6 1 25 5 rf o'm 20 a) If short selling is allowed, determine the optimal allocation across each security in the construction of the risky portfolio (6 marks). b) If short selling is not allowed determine the optimal allocation across each security in the construction of the risky portfolio. (6 marks)
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