Plz solve question 5

ne portfolio of A and B having minimum standard deviation. (b) What is the value of this minimum standard deviation? (c) What is the expected return of this portfolio? 4. Two stocks) Two stocks are available. The corresponding expected rates of return are F1 and-2; the corresponding variances and covariances are ,0% and 12, what percentages of total investment should be invested in each of the two stocks to minimize the total variance of the rate of return of the resulting portfolio? What is the mean rate of return of this portfolio? 5. (Rain insurance) Gavin Jones's friend is planning to invest $1 million in a rock concert to be held 1 year from now. The friend figures that he will obtain $3 million revenue from his $1 million investment-unless, my goodness, it rains. If it rains, he will lose his entire investment. There is a 50% chance that it will rain the day of the concert. Gavin suggests that he buy rain insurance. He can buy one unit of insurance for $.50, and this unit pays $1 if it rains and nothing if it does not. He may purchase as many units as he wishes, up to $3 million. (a) What is the expected rate of return on his investment if he buys u units of insurance? (The cost of insurance is in addition to his $1 million investment.) (b) What number of units will minimize the variance of his return? What is this mini mum value? And what is the corresponding expected rate of return? (Hint: Before alculating a general expression for variance, think about a simple answer.] (Wild cats) Suppose there are n assets which are uncorrelated. (They might be n different ld cat" oil well prospects.) You may invest in any one, or in any combination of them. mean rate of return F is the same for each asset, but the variances are different. The 6. The return on asset i has a variance of ? for 1-1, 2, . . . , n. a) Show the situation on an r- diagram. Describe the efficient set. Fynress your result in terms of