Finance

1. Explain the concept of short selling.
2. Suppose you purchase $1,000 of security A, purchase $500 of security B, and bor¬row $500.If the transactions constitute your entire portfolio ,what are the port¬folio weights for each component of the portfolio?
3. Consider two securities with the follow in characteristics :

SecurityX SecurityY
Expected return .10 .14
Standard deviation .25 .30
Suppose you build a portfolio with equal dollar amounts in the two securities. Compute the expected return and variance of the portfolio under each of the following assumptions about the correlation between returns on X and Y•
Correlation = 1
Correlation = 0
Correlation = -1
4. . Assume that two securities have a correlation coefficient of -1.0.
a. What would be the lowest possible standard deviation that could be achieved by constructing a portfolio of these two securities?
b. Two securities , LandM ,are perfectly negatively correlated .L’sstandard deviationism .6 and M’s standard deviationism .8.Find the portfolio’ of LandM that will result in the lowest possible standard deviation.