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  3. (sa) = (5:20), (a) = 6:18), ca) 6:30).p= 0.4 assum

(SA) = (5:20), (A) = 6:18), CA) 6:30).p= 0.4 Assume an investor holds a portfolio...

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(SA) = (5:20), (A) = 6:18), CA) 6:30).p= 0.4 Assume an investor holds a portfolio on assets A and B, where the stock prices today, expected returns, volatilities and correlation are: $100 0.12 0.20 SB $20 HB 10.15 OB 10.30 a) Find the proportion of wealth allocated to asset A that minimizes the variance of the portfolio. How many units of asset B shall be purchased. b) Compute the expected return and volatility of portfolio from part a). c) Find the proportions of wealth allocated to assets A and B if the investor is targeting an expected return of 14%. d) Compute the variance of the portfolio in part c). e) Assume the expected market return is 15% with standard deviation 25%. The correlation between the market and assets A and B are 0.6 and 0.2 respectively. The risk free return rate is 3%. Compute the betas of each asset. f) Compute the CAPM expected returns of assets A and B. g) What is the variance of the idiosyncratic component for asset A and for asset B

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