Question
Security Anita has received an inheritance from her husband of KShs. 50 million. She intends to portfolio securities A and B. The performance of the
The performance of the two securities are summarized below:
Security Ri Correlation Coefficient of A and B
A 15% 4% -
B 10% 2% -1.0
Required:
(a) Compute the portfolio expected return and portfolio variance of Anita's portfolio based on optimality rule
AXA=
(b) Suppose Anita undertakes asset rebalancing and opts for a portfolio consisting of risky asset and risk-free securities. The 91 days treasury bills rate was 5%. The proposed weights were 80:20 for A and risk-free security, respectively. Compute the portfolio expected
return and the portfolio variance.
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