Mr. Smith is presently concerned with investment of $ 1 million in either Microsoft or Apple. The

QUESTION

Mr. Smith is presently concerned with investment of $ 1 million in either Microsoft or Apple. The two securities are called MSFT and AAPL and the relevant information for the securities are listed below MSFT AAPL Expected Return 12% 20% Standard Deviation 10% 18% The coefficient of correlation is 0.15. He has decided to invest his money in 4 portfolios1) All funds in MSFT2) 50% in MSFT and AAPL2) 75% in MSFT and 25% in AAPL3) 25% in MSFT and 75% in AAPLa) Which portfolio is the best for Mr. Smith from the point of risk and returnb) risk factor associated with portfolios
The expected return of the portfolio is the weighted average of returns of securities with weights being in proportion to the weight of security in portfolio. The risk of the portfolio is measured in terms of standard deviation. From the point of view of the return I think that portfolio 4 is the best. Portfolio 4 because it

as the highest resturn of 18%. If 75% funds are invested in AAPL and 25% in MSFT then the average return of the portfolio is 18%. From the view of risk 75% MSFT and 25% in AAPL has the lowest standard deviation of 9.3%

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