Chapter 6 Mini-Case: Risk, Return, and the Capital Assets Pricing Model Review the mini-case in Chapter 6 of your text and respond to the following: Andrea Corbridge is considering forming a portfolio consisting of Kalama Corp. and Adelphia Technologies. The two corporations have a correlation of -0.1789, and their expected returns and standard deviations are as follows:Kalama Corp.Adelphia TechnologiesExpected return (%)14.8623.11Standard Deviation (%)23.3631.89Calculate the frontier for all possible investment combinations of Kalama Corp. and Adelphia Technologies (from 0% to 100%, in 1% increments). Determine the optimal risky portfolio if the risk-free rate is 3%.Andrea has $50,000 and wants to earn a 19% expected return on her investment. Describe the optimal manner in which to structure her portfolio-both in dollar amounts and in weights relative to her $50,000-based on the preceding information.Andrea is also seriously considering buying some stock in Medford Barnett Corporation (MBC). The stock prices of MBC and the S&P for the past 25 months are tabulated below. Andrea estimates that MBC will earn a 14% return during the next year, and she expects the market to earn a 12% return during the same time period. In addition, she expects the relationship exhibited between the S&P and MBC to remain as it has in the past. Assuming that Andrea would be pulling MBC into a fully diversified portfolio, explain if buying the MBC shares a good decision.MonthS&PMBC11198.4158.0421228.8165.3631220.3348.4841234.1853.3251191.3357.5961191.5049.2371156.8555.5781180.5950.9991203.6064.10101181.2750.45111211.9250.65121173.8251.23131130.2046.68141114.5851.09151104.2450.75161101.7259.80171140.8452.78181120.6849.22191107.3053.47201126.2149.26211144.9448.55221131.1361.32231111.9248.06241058.2058.88251050.7146.19Remember to show all your work.
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