Portfolio Optimisation. Consider a market that contains only risky assets, and assume that short-selling is allowed. The minimum variance portfolio of risky assets (portfolio A) has mean rate of return TA = 10% and standard deviation A = 10%. Moreover, there is another portfolio on the efficient frontier (portfolio B) with mean rate of return is = 40% and standard deviation OB = 40% a Suppose that the covariance of the rates of return of A and B is AB = -0.01. What is the portfolio of A and B which has a mean rate of return of 20% (portfolio C)? b Does portfolio C have minimum variance for its mean rate of return of 20%? Justify your answer. C Assume that a risk-free asset with rate of return ri= 4% is introduced. Find the one portfolio of risky assets with the property that any efficient portfolio can be constructed as a combination of it and the risk-free asset. d Draw a portfolio diagram and describe its shape for the following three cases: - The correlation between A and B is 0. - The correlation between A and B is 1. - The correlation between A and B is -1. The four parts carry, respectively, 25%, 15%, 45%, and 15% of the marks. Portfolio Optimisation. Consider a market that contains only risky assets, and assume that short-selling is allowed. The minimum variance portfolio of risky assets (portfolio A) has mean rate of return TA = 10% and standard deviation A = 10%. Moreover, there is another portfolio on the efficient frontier (portfolio B) with mean rate of return is = 40% and standard deviation OB = 40% a Suppose that the covariance of the rates of return of A and B is AB = -0.01. What is the portfolio of A and B which has a mean rate of return of 20% (portfolio C)? b Does portfolio C have minimum variance for its mean rate of return of 20%? Justify your answer. C Assume that a risk-free asset with rate of return ri= 4% is introduced. Find the one portfolio of risky assets with the property that any efficient portfolio can be constructed as a combination of it and the risk-free asset. d Draw a portfolio diagram and describe its shape for the following three cases: - The correlation between A and B is 0. - The correlation between A and B is 1. - The correlation between A and B is -1. The four parts carry, respectively, 25%, 15%, 45%, and 15% of the marks