Question (30 marks)
You are provided the returns in percentage for shares A and B:
Year 2015 2016 2017 2018 2019 2020
Share A -9 16 5.5 -5 5 13
Share B 15 9 -10 4 -6 10.5
a. Compute the average (expected) return and volatility (standard deviation) for shares A and B.
b. Determine the covariance and the correlation coefficient between returns on A and returns on B.
c. Calculate the expected return and standard deviation for a portfolio P of share A and share B, where the proportion invested in A is 50.28%.
d. A second portfolio Q also comprise share A and share B, where the proportion invested in A is 10.00%. Discuss which portfolio is efficient.
Note: To show all workings with accompanying explanations.
Word count requirement: 500. Minimum number of references: 2.
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