Question

**Question 2 **

The expected returns and standard deviation of returns for two securities are as follows:

Security Z | Security Y | ||

Expected Return | 15% | 35% | |

Standard Deviation | 20% | 40% |

The correlation between the returns is +0.25.

a) Calculate the expected return and standard deviation for the following portfolios:

i) All in Z

ii) 0.75 in Z and 0.25 in Y

iii) 0.5 in Z and 0.5 in Y

iv) 0.25 in Z and 0.75 in Y

v) All in Y

b) Draw the mean-standard deviation frontier.

c) Which portfolios might not be held by an investor who likes high expected return and low standard deviation?

Step 1

**a.**

**Calculation of Expected Return of Portfolio:**

The Expected Return of Portfolio is calculated using a excel spreadsheet. **The excel spreadsheet is shown below:**

Step 2

**The excel spreadsheet workings is shown below:**

Step 3

**Calculation of Standard Deviation of Portfolio:**

The Standard Deviation of Portfolio is calculated using a excel function =SQRT, which denotes the square root or standard...

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