Assumed Market Return = 14.5% Assumed Risk Free Rate = 1.

5% Assumed Market Volatility (Sigma) = 15% Portfolio 1 Stock Weight Annual Volatility A 10% 10% B 20% 5% C 40% 60% D 5% 30% E 15% 25% F 10% 40%

Expected Returns 39% 29% 30% 25% 12% 7%

Covariance With Markets 0.01 0.005 0.06 0.03 0.025 0.04

Expected Returns = 25.4500% Variance = 0.09264375 Volatility = 30.44% Portfolio Beta = 1.566667 Portfolio is more volatile than market Market Model 0.2191 Expected return is higher than that proposed by market model Sharpe Ratio 1 0.786794 Sharp Ratio Market 0.866667 Bottom Line: DONT INVEST

Beta 0.444444 0.222222 2.666667 1.333333 1.111111 1.777778

Doesn't move much with market "" Moves strongly when market fluctuates "" Moves slightly more than market during times of fluctuation Moves strongly when market fluctuates

Portfolio 2 Stock A B

Expected Return = Variance = Volatility = Sharpe Ratio 5.619894 Ranking 1. Portfolio 2 2. Market 3. Portfolio 1 SR2 > SRM > SR1 Bottom Line: Invest!

Weight Annual Volatility 12% 10% 88% 5%

Expected Returns 39% 29%

Covariance with Markets 0.01 0.005

Correlation b/n A,B 0.5

Expected Return = 0.002608 0.051069 Sharpe Ratio

30.200%

Bottom Line:

Correlation b/n A,B