1 An investment portfolio consists of two securities, X and Y. The weight of X is 30%. Asset X's expected return is 15% and the standard deviation is 28%. Asset Y's expected return is 23% and the standard deviation is 33%. Assume the correlation coefficient between X and Y is 0.37. A. Calcualte the expected return of the portfolio B. Calculate the standard deviation of the portfolio return. Suppose now the investor decides to add some risk free assets into this portfolio The new weights of X Y and risk free assets are 0.21, 0.49 and 0.30. What is the standard deviation of the new portfolio? 2 A project requires an initial Investment of $500,000 and expects to produce an after-tax operating cash flow of $180,000 per year for three years. The asset value will be depreciated to zero using straight-line depreciation over the three years. At the end of the project, the asset could be sold at market price. Assume a 21% tax rate and 15% cost of capital. What is the market price of the fixed asset that will make this project break even? +