1. Suppose that there exist two securities (x and y) with an annual expected return equal to rx = 8% and ry 5% and a standard deviation of the returns equal to x = 10% and y = 7%, respectively. Moreover, the correlation coefficient between the returns of these securities is = -0.8.What is the return and the risk of a portfolio consisting of these two securities with the minimum variance and what is the role of the coefficient of correlation in the determination of the portfolio risk-return profile?
2. Suppose that we evaluate two equity portfolios that consist of securities of the same stock exchange during a bearish period, i.e. the market portfolio declines during this period. The first portfolio (portfolio A) consists of 50 defensive securities while the second (porfolio B) consists of 5 aggressive securities. Which portfolio would be most likely to experience greater loses (in relative terms) due to the decline of the market portfolio?