Use the following two tables to answer questions a. - e. a. Which of the above securities cannot lie on the efficient frontier?b. Why might you nonetheless include it in your portfolio?c. What is the expected return for a portfolio comprised of 40% security B and 60% security C?d. What is the standard deviation for a portfolio comprised of 40% security B and 60% security C?e. Suppose a risk-free asset with a yield of 3% exists, but only for lending. Would the highly risk-averse investor's optimal portfolio be likely to contain asset C? Why or why not? ### Portfolio Analysis#### Table: Portfolio MetricsThe table presents data for four portfolios, labeled A, B, C, and D. Each portfolio is evaluated based on two metrics:- **Expected Return (%)**: This represents the average return anticipated from each portfolio. - Portfolio A: 5% - Portfolio B: 13% - Portfolio C: 10% - Portfolio D: 18%- **Standard Deviation**: This measures the volatility or risk associated with each portfolio's return. - Portfolio A: 3% - Portfolio B: 7% - Portfolio C: 11% - Portfolio D: 13%#### Table: Correlation MatrixThe correlation matrix shows the relationships between the returns of the four different portfolios. The values range from -1 to 1, where 1 indicates a perfect positive correlation, -1 indicates a perfect negative correlation, and 0 indicates no correlation.- **Portfolio A** has: - A correlation of 1.0 with itself, 0.8 with B, 0.2 with C, and 0.7 with D.- **Portfolio B** has: - A correlation of 1.0 with itself, -0.3 with C, and 0.9 with D.- **Portfolio C** has: - A correlation of 1.0 with itself and 0.3 with D.- **Portfolio D** has: - A correlation of 1.0 with itself.This data can be useful for diversifying investments and assessing risk, as positively correlated portfolios may not provide as much risk mitigation as those that are uncorrelated or negatively correlated.

Answered: Use the following two tables to answer…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Question

Use the following two tables to answer questions a. - e.

a. Which of the above securities cannot lie on the efficient frontier?

b. Why might you nonetheless include it in your portfolio?

c. What is the expected return for a portfolio comprised of 40% security B and 60% security C?

d. What is the standard deviation for a portfolio comprised of 40% security B and 60% security C?

e. Suppose a risk-free asset with a yield of 3% exists, but only for lending. Would the highly risk-averse investor's optimal portfolio be likely to contain asset C? Why or why not?

### Portfolio Analysis

#### Table: Portfolio Metrics
The table presents data for four portfolios, labeled A, B, C, and D. Each portfolio is evaluated based on two metrics:

- **Expected Return (%)**: This represents the average return anticipated from each portfolio.
- Portfolio A: 5%
- Portfolio B: 13%
- Portfolio C: 10%
- Portfolio D: 18%

- **Standard Deviation**: This measures the volatility or risk associated with each portfolio's return.
- Portfolio A: 3%
- Portfolio B: 7%
- Portfolio C: 11%
- Portfolio D: 13%

#### Table: Correlation Matrix
The correlation matrix shows the relationships between the returns of the four different portfolios. The values range from -1 to 1, where 1 indicates a perfect positive correlation, -1 indicates a perfect negative correlation, and 0 indicates no correlation.

- **Portfolio A** has:
- A correlation of 1.0 with itself, 0.8 with B, 0.2 with C, and 0.7 with D.

- **Portfolio B** has:
- A correlation of 1.0 with itself, -0.3 with C, and 0.9 with D.

- **Portfolio C** has:
- A correlation of 1.0 with itself and 0.3 with D.

- **Portfolio D** has:
- A correlation of 1.0 with itself.

This data can be useful for diversifying investments and assessing risk, as positively correlated portfolios may not provide as much risk mitigation as those that are uncorrelated or negatively correlated.

Expert Solution

Step 1

Solution

(a) C cannot lie on efficient frontier.

(b) C cannot lie on efficient frontier because it has standard deviation more than B but provides return less than B hence it is an inefficient portfolio.