Portfolio Management: Exercise 1 James Bonet, is an international investor, which faces the possibility to invest his money in a portfolio of British Petroleum (BP) and/or Banco Santander (BS) shares, with an expected return 26% and 17%, respectively. On the other side, he knows the past risk of the shares, measured by the standard deviation of returns, has been 16% for BP and 5.4% for BS. 1/2 Knowing that the correlation of returns between both shares has been 0.1. James wants to lat the expected return y total risk of the following portfolios, with a given percentage of both shares: Invest 20% in BP and 80% in BS Invest 40% in BP and 60% in BS Invest 60% in BP and 40% in BS Invest 80% in BP and 20% in BS d) James Bonet also wants to know which will be the best portfolio of BS and BP shares, if he can lend and borrow at a free interest rate of 14% and the market is at equilibrium. Exercise 2 In the Cha-am stock exchange, only two stocks are actually being traded: Hua Hin Corporation, a livestock company, that we will call HC for short and Ceramics Ayuthaya (CA), which as its name indicates trades, in ceramics and handy crafts. The yearly average return of both companies in this stock market has been 18% for HC and 25% for CA. The risk, measured by the past standard deviation, has been 2% for HC and 4% for CA, with a correlation coefficient of 0.1 for both shares. In the Cha-am market, government short term treasury bills (T-bills) are also traded, with a present yearly return of 12% We would like to know Which is the expected return and total risk of the Cha-am market portfolio if we know the market risk premium, in equilibrium, is 8.5% and the CML equation? b) John Dole has invested $1 million of his own money in a portfolio with the minimum risk for an expected return of 19%. Explain did he split his money between the different assets of the Cha am market. J.R. Texas has invested $2 million of his own money in a portfolio with the highest expected return an expected risk of 5%, measured by the standard deviation of returns. How this portfolio will be split between the different assets