Q1.

a. Assume that a Fund's Manager targets to earn a return of 12.9% on the portfolio constructed for his comparatively risk tolerant client. For achieving this goal, she wants him to invest $10,000 exclusively in a two asset stock portfolio. Upon searching the stock market and the income in hand to invest, he found two stocks worth of investing namely, Stock Q ( Rq =14%) and Stock P (Rp =9%). His client wants to know how much money of her money is to be invested in each stock to reach the target return. Find out this information for her. Which other important information related to portfolio investment is missing in the Fund Manager's analysis?

b. Using the Markowitz special case equation , explain how the covariance (1,2) if assume values of +1 and -1, affects the portfolio's risk.

c. When Apple Inc. brought a new iPad (with a faster processor and better features) in the market to compete against Samsung Galaxy Tabs, on Monday at 11 am. What do you expect would happen to the stock price of Apple on NASDAQ? Is your answer consistent with the efficient market hypothesis, how?