Draw the efficient frontier of portfolios

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Reference no: EM131308284

1) Your eccentric aunt has left you $50,000 in Alcan shares plus $100,000 cash. Unfortunately, her will requires that the Alcan stock not be sold for one year and that $60,000 cash must entirely be invested in T-bills with $40,000 in any one of the other three stocks shown in the Table below. What is the standard deviation of returns for the safest attainable portfolio under this restriction?

Correlation Coefficients

	Alcan	BP	Deutsche Bank	KLM	Standard Deviation
Alcan	1.00	.39	.55	.44	30%
BP		1.00	.23	.29	40%
DB			1.00	.36	25%
KLM				1.00	35%

2) Consider two stocks: ABC and XYZ with the following information

	ABC	XYZ
Mean Return	8%	20%
Standard Deviation	10%	35%

Draw the efficient frontier of portfolios if (a) the correlation coefficient is 0.4, and (b) -.3. These will be two different graphs.

What is the composition and the standard deviation of the minimum-variance portfolio under (a) and (b) above?

Reference no: EM131308284

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