Problem 1 (8 marks) Information on two assets, X Y, is below Portfolios A through K have been constructed by varying the weights of Asset X and Asset Y, and the Expected Return and Standard Deviation is given for each Plot the portfolios on a graph (SD on x axis ER on y axis) and label (1 mark) Minimum variance portfolio (MVP) (1 mark) Inefficient portfolios (1 mark) Efficient Portfolios (1 mark) As a risk averse investor (want to minimize risk), which portfolio(s) would you choose Briefly explain (2 marks) As an investor who is prepared to take on more risk (more tolerance for risk), which portfolio(s) would you choose Briefly explain (2 marks) Correlation Coefficient Asset Expected Return 5 0 14 0 Standard Deviation 15 0 40 0 X 0 5 Y Portfolio Components A Weight of X 100 00 90 00 80 00 70 00 60 00 50 00 40 00 30 00 20 00 10 00 0 00 Weight of Y 0 00 10 00 20 00 30 00 40 00 50 00 60 00 70 00 80 00 90 00 100 00 Portfolio Characteristics Expected Standard Return Deviation 5 00 15 0 5 90 12 0 6 80 10 6 7 70 11 3 8 60 13 9 9 50 17 5 10 40 21 6 11 30 26 0 12 20 30 6 13 10 35 3 14 00 40 0 U I J K K

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Problem #1 (8 marks) Information on two assets, X & Y, is below. Portfolios A through K have been constructed by varying the weights of

Problem #1 (8 marks)

Information on two assets, X & Y, is below. Portfolios A through K have been constructed by varying the weights of Asset X and Asset Y, and the Expected Return and Standard Deviation is given for each.

Plot the portfolios on a graph (SD on x-axis & ER on y-axis) and label: (1 mark)

Minimum variance portfolio (MVP) (1 mark)
Inefficient portfolios (1 mark)
Efficient Portfolios. (1 mark)

As a risk averse investor (want to minimize risk), which portfolio(s) would you choose? Briefly explain. (2 marks)
As an investor who is prepared to take on more risk (more tolerance for risk), which portfolio(s) would you choose? Briefly explain. (2 marks)

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Correlation Coefficient Asset Expected Return 5.0% 14.0% Standard Deviation 15.0% 40.0% X -0.5 Y Portfolio Components A Weight of X 100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Weight of Y 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Portfolio Characteristics Expected Standard Return Deviation 5.00% 15.0% 5.90% 12.0% 6.80% 10.6% 7.70% 11.3% 8.60% 13.9% 9.50% 17.5% 10.40% 21.6% 11.30% 26.0% 12.20% 30.6% 13.10% 35.3% 14.00% 40.0% U I J K K