Based on the following information on two assets A and B answer questions a and...
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Finance
Based on the following information on two assets A and B answer questions a and b.
| A | B | |
| Average Return | 12.50% | 10.50% |
| Standard Deviation | 20.00% | 15.00% |
- If the correlation coefficient between asset A and B is 0.40, what is the least risky combination of these two assets?
(5 marks)
- Assuming you can borrow and lend at the risk free rate of return of 2.5%, how much you should invest in the portfolio (comprising of security A and security B) and the risk free asset so that the combination of risky portfolio (comprising of security A and security B) and the risk free asset provides 10% return. How much would be invested in security A, security B, and the risk free asset and what would be the risk of the new portfolio?
(15 marks)
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