Question

Below is actual price and dividend data for three companies for each of seven months.
	Security A		Security B		Security C
Time	Price	Dividend	Price	Dividend	Price	Dividend
1	$48.27		$25.50		$178.00
2	$49.10		$23.85		$165.00
3	$52.60	$2.50	$19.95	$2.50	$174.00	$15.00
4	$51.35		$24.65		$182.00
5	$53.25		$25.10		$183.00
6	$53.92	$2.25	$22.78	$2.50	$187.00	$12.50
7	$52.00		$26.18		$193.00

Assuming short selling is allowed:
i. For securities 1 and 2 find the composition, standard deviation, and expected return of that portfolio that has minimum risk.
ii. On the same graph plot the expected return and standard deviation for all possible combinations of securities 1 and 2
iii. Assuming that investors prefer more to less and are risk avoiders, indicate those sections of the diagram in part ii) that are efficient.
iv. Repeat steps i), ii) and iii) for all other possible pairwise combinations of securities in Problem 1.

Answer 1