Qn

The returns on shares are independent and the average expected return is 15% with an average standard deviation of 21%

i. Determine the expected return and risk of portfolio of 40 equally weighted securities chosen at a random.

ii. How many securities will it be necessary to include in a random selected portfolio to take an expected standard deviation of portfolio to 10%

iii Determine the expected risk of a portfolio of 40 random chosen securities if the returns on securities are not independent but pairs of securities have on average correlation of +0.5