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(1) Consider a portfolio of two risky assets with the following details:

1a) Compute the expected portfolio return and portfolio volatility of the minimum variance portfolio.

1b) Draw a graph to illustrate the investment opportunity, use 3 allocations and clearly indicate where is the minimum variance portfolio (MVP) allocated.

(2) Consider a portfolio with two assets A and B such that _A = 0.175, _B = 0.055 and _A = 0.067, _B = 0.013

2a) Compute the expected portfolio return and portfolio volatility of the minimum variance portfolio. 2b) What is the 5% VaR of the minimum variance portfolio, assuming the financial returns are normally distributed? 2c) What is the 5% VaR for each individual asset, assuming the financial returns are normally distributed?

(3) Assume there are two assets, A and B, with A = 1.4 and B = 0.8. Assume also that the CAPM model applies. If the mean return on the market portfolio is 10% and the risk-free rate of return is 5%, calculate the mean return of the portfolios consisting of:

75% of asset A and 25% of asset B,

50% of asset A and 50% of asset B,

25% of asset A and 75% of asset B.

Description Variable Value ExpectedreturnStockIndex(A)ExpectedreturnBondIndex(B)VolatilityStockIndex(A)VolatilityBondIndex(B)CorrelationbetweenStockandBond0.100.300.300.350.80 Description Variable Value ExpectedreturnStockIndex(A)ExpectedreturnBondIndex(B)VolatilityStockIndex(A)VolatilityBondIndex(B)CorrelationbetweenStockandBond0.100.300.300.350.80

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