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The expected returns, return variances, and the correlation between the returns of four securities are shown below.
Determine the expected return and variance of a portfolio that contains 78% security A and 22% security B. Is this portfolio superior to that one in (a) above?
Calculate the expected return and variance of a portfolio that contains 60% security C and 40% security D.
If an investor were to select among the following three portfolios, which one would he or she prefer?
An equally-weighted portfolio of securities A, B, and C.
An equally-weighted portfolio of A, B, and D.
An equally-weighted portfolio of B, C, and D.
If a risk-adverse investor desires to hold a portfolio of only two securities and expects a return of 11%, what would you advise the investor to do?
