a. Plot the following risky portfolios on a graph:
|
Portfolio
|
|
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
|
Expected return (r),%
|
10
|
12.5
|
15
|
16
|
17
|
18
|
18
|
20
|
|
Standard deviation (s),%
|
23
|
21
|
25
|
29
|
29
|
32
|
35
|
45
|
b. Five of these portfolios are efficient, and three are not. Which are inefficient ones?
c. Suppose you can also borrow and lend at an interest rate of 12 percent. Which of the above portfolios is best?
d. Suppose you are prepared to tolerate a standard deviation of 25 percent.
What is the maximum expected return that you can achieve if you cannot borrow or lend?
e. What is your optimal strategy if you can borrow or lend at 12 percent and are prepared to tolerate a standard deviation of 25 percent? What is the maximum expected return that you can achieve?