Portfolio Analysis

Question 4 Grape plc is considering the following two investment opportunities for which the expected returns and associated probabilities are as follows depending on the economic climate: Economic climate probability of occurrence Returns from A (%) Returns from B (%) Recession 0.2 -12 22 Stable 0.5 14 16 Growth 0.3 20 -10 Question: a) Calculate the expected return and standard deviation of investment A (1.5 marks) b) Calculate the expected return and standard deviation of investment B (1.5 marks) c) Calculate the covariance and correlation coefficient of the two investments (3 marks) d) What is the correct allocation of resources (weights) between the two investments, which will give the minimum standard deviation for the resulting portfolio? (3 marks) e) Calculate the portfolios expected return and standard deviation (3.5 marks)