Assume Stocks A and B have the following characteristics: The co-variance between the returns on the two
Question:
The co-variance between the returns on the two stocks is .01.
a. Suppose an investor holds a portfolio consisting of only Stock A and Stock B. Find the portfolio weights, XA and XB , such that the variance of his portfolio is minimized. (Hint: Remember that the sum of the two weights must equal 1.)
b. What is the expected return on the minimum variance portfolio?
c. If the co-variance between the returns on the two stocks is €“.15, what are the minimum variance weights?
d. What are the variance and standard deviation of the portfolio in part (c)?
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Step by Step Answer:
a The variance of a portfolio of two assets equals 2 P X 2 A 2 A X 2 B 2 B 2X A X B CovAB Since the ...View the full answer
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Related Book For 
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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