Question 2 (12 Marks). Adam Joe is a portfolio manager and has the information on the investments in the table below. A, B, and C are individual risky securities. M is the market portfolio. Risk-free rate is 4%. All returns are annual returns. Expected Standard Correlation Investment Return Deviation A B C M A 24.42% 30% 0.8171 0.8591 0.5833 B 29.86% 37% 1 0.5528 0.5991 C 16.64% 22% 1 0.4924 M 18% 12% 1 a. What is the covariance of Asset A with the market portfolio? (1 mark) b. Calculate the beta of Asset A and B. (2 marks) c. How will you divide your money between Asset A and Asset B if your aim is to achieve a portfolio with an expected return of 25% p.a.? What is the standard deviation of this portfolio? What is the systematic risk of this portfolio? (5 marks) d. How will you divide your money between the risk-free asset and the market portfolio if you are willing to bear a standard deviation of 15% p.a. for your portfolio? What is the expected return of this portfolio? (2 marks) e. Does any of the portfolios in parts (c) and (d) dominate the other? (2 marks) 1 Question 2 (12 Marks). Adam Joe is a portfolio manager and has the information on the investments in the table below. A, B, and C are individual risky securities. M is the market portfolio. Risk-free rate is 4%. All returns are annual returns. Expected Standard Correlation Investment Return Deviation A B C M A 24.42% 30% 0.8171 0.8591 0.5833 B 29.86% 37% 1 0.5528 0.5991 C 16.64% 22% 1 0.4924 M 18% 12% 1 a. What is the covariance of Asset A with the market portfolio? (1 mark) b. Calculate the beta of Asset A and B. (2 marks) c. How will you divide your money between Asset A and Asset B if your aim is to achieve a portfolio with an expected return of 25% p.a.? What is the standard deviation of this portfolio? What is the systematic risk of this portfolio? (5 marks) d. How will you divide your money between the risk-free asset and the market portfolio if you are willing to bear a standard deviation of 15% p.a. for your portfolio? What is the expected return of this portfolio? (2 marks) e. Does any of the portfolios in parts (c) and (d) dominate the other? (2 marks) 1