The expected return and standard deviation of return of two risky securities is given below Security Expected Return Standard deviation A B 12% 16% 20% 30% Assets A and B are perfectly positively correlated and the risk-free rate is 10%. Find the optimal risky portfolio (i.e. weights for security A and B) and show it graphically? Ordinarily you would not be able to answer this question without tracing out the efficient frontier by solving the Markowitz model. However, since the assets are perfectly positively correlated, you don't need to solve the Markowitz model all combinations of A and B lie on a straight line between them. With that in mind consider what is the best you can do when you combine a riskless asset with the possible risky portfolios (that lie on the straight line) you face.

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.