You have been given information about the expected performance of two securities, A and B, over...

You have been given information about the expected performance of two securities, A and B, over the next year. Assume that the performance of the securities largely follow the performance of the economy. For the particular year, four scenarios of economic performance are expected for each respective security and are as advised below.

Based on this information, you have been requested to undertake a performance analysis with a view to forming a two-security portfolio. The correlation coefficient of the securities returns is 0.35.

A		B
Prob.	Return (%)	Prob.	Return (%)
0.2	-10	0.15	-12
0.3	-5	0.55	11
0.4	10	0.2	18
0.1	25	0.1	25

Required:

a)Assuming investment proportions for the Stock A of 0% to 100%, in increments of 10%;
- i)The portfolios that are not feasible.
- ii)The Minimum Variance Portfolio.
- iii)The optimum Portfolio.

Expert Solution

jeff jeffy answered 1 year ago

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