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Question 2 The expected returns and standard deviation of returns for two securities are as follows: Security ZSecurity Y Expected Return15%35% Standard Deviation20%40%   The correlation between the returns is +0.25.a) Calculate the expected return and standard deviation for the following portfolios: i) All in Zii) 0.75 in Z and 0.25 in Yiii) 0.5 in Z and 0.5 in Yiv) 0.25 in Z and 0.75 in Yv) All in Yb) 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?

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?

check_circleAnswer
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:

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Step 2

The excel spreadsheet workings is shown below:

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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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