Allocate their assets along capital market line

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Reference no: EM131933607

Suppose you have two stocks that you are able to invest in that have the following return properties over the past 5 years:

TOL (Annual Return: 20%, Standard Deviation of Returns: 15%)

BGSU (Annual Return 9%, Standard Deviation of Returns: 11%)

Correlation Coefficient: -.3

a. Plot the two securities in Expected Return/Standard Deviation space and identify each security. Add the minimum variance and equally weighted portfolios to your plot.

b. Add the efficient frontier to your plot and discuss where you expect the Markowitz optimal portfolio to lie.

c. Add a risk free asset to your plot and draw the potential portfolio combinations with the Markowitz portfolio and the risk free asset (Capital Market Line).

d. Discuss how investors with low, medium, and high risk aversion will allocate their assets along the Capital Market Line.

Reference no: EM131933607

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