Question 1.

There are N assets whose returns are jointly normally distributed. Portfolios A and B are frontier portfolios. The expected return, standard deviation, and the correlation between the assets are:

A 0.2 0.1 B 0.3 0.2 0.25

a) b) c)

Calculate expected return and variance of the minimum variance portfolio. Argue whether portfolio A is efficient or not. Calculate the variance of the efficient portfolio C with an expected return of 0.25.