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Total: 20 marks) A portfolio manager creates the following portfolio: Security Expected Annual Return % Annual Standard Deviation % Si 16% 20% S2 12% 10%
Total: 20 marks) A portfolio manager creates the following portfolio: Security Expected Annual Return % Annual Standard Deviation % Si 16% 20% S2 12% 10% (a) 8 marks) If you form a portfolio with 50% for each of Security 1 and Security 2. Calculate the portfolio return and the risks if the correlation of returns between the two securities are 1, 0 and -1. Compare the risks of the portfolio with different correlations and explain the results. (b) (5 marks) Assume the correlation of the two securities' returns is 0.5. Calculate the expected return and standard deviation of the minimum variance portfolio. (c) (4 marks) If the portfolio has an expected return of 15% and the correlation of the returns are same as in (b), find the weight of this portfolio. (d) [3 marks) If we target the risk at 18% and the correlation of the returns are same as in (b), find the weights of this portfolio and the expected return of this portfolio
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