Problem: Principal of Finance
This problem is designed to test students' knowledge on the concept of risk and return. Students are expected to performance computations to evaluate the efficiency of portfolios.
• Compute the average (expected) return and volatility (standard deviation) for shares A and B.
• Determine the covariance and the correlation coefficient between returns on A and returns on B.
• Calculate the expected return and standard deviation for a portfolio P of share A and share B, where the proportion invested in A is 50.28%.
• A second portfolio Q also comprise share A and share B, where the proportion invested in A is 10.00%. Discuss which portfolio is efficient.
The response must include a reference list. Using Times New Roman 12 pnt font, double-space, one-inch margins, and APA style of writing and citations.