QUESTION TWO a) Securities of M and N are equally risky but they have different expected returns (20 marks) Expected return (%) Weight Standard deviation (%) 16.00 0.50 20.00 24.00 0.50 20.00 Calculate the portfolio risk (variance) if- (i) Cormn+1.0 (ii) Cormn1.0 (iii) Cormn0.0 (iv) Cormn = +0.10 (v) Cormn -0.10 (5marks) b) Four assets have the following distribution of returns. Probability Occurrence 0.1 0.2 Rate of return (%) 14.0% 12.0 10.0 8.0 6.0 6.0% 8.0 10.0% 10.0 10.0 10.0 10.0 2.096 6.0 0.2 12.0 14.0 20.0 Required: Compute the correlation coefficient of the combination of assets of the following assets and explain i. A and B i. B and C iii. B and D (15marks)