Portfolio Mathematics Please show how you got your answer an

Portfolio Mathematics

Please show how you got your answer and your reasoning.

A) What is the portfolio expected return for each of the following combinations:

Portfolio A: W₁ = W₂ = .5; and Portfolio B: W₁ = .75, and W₃ = .25.

B) What are the variances and standard deviations for each portfolio as in Part A?

C) Which of the two porfolios would yo choose? Why?

Consider the following expected return, variance and correlation values for the three securities listed below:

a) portolio A: Return = 0.08(0.5)+0.10(0.5) = 0.09

Portfolio B Return 0.08(0.75)+0.25(0.10) = 0.06+0.025 = 0.085

B) Variance (A) = 0.25(0.05) + 0.25(0.10) = 0.0375

Var(B) = 0.5625(0.05)+(0.0625)(0.15) = 0.028125+0.009375

= 0.0375

Std dev (A) = sd (B) = 0.194

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I would prefer A to B as Expected value is more in portfolio A and stdd eviation for both is the same.

Also correlation between 1 and 2 is highly positive with 0.80 which means both increase together.