Minimum Variance Portfoli o Assume Stocks A and B have the following characteristics: Stock Expected Return (%)
Question:
Minimum Variance Portfoli o Assume Stocks A and B have the following characteristics:
Stock Expected Return (%) Standard Deviation (%)
A 9 33 B 15 62 The covariance between the returns on the two stocks is .001.
a. Suppose an investor holds a portfolio consisting of only Stock A and Stock B .
Find the portfolio weights, X A and X B , such that the variance of her 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 covariance between the returns on the two stocks is 2.05, what are the minimum variance weights?
d. What is the variance of the portfolio in part (c)?
Step by Step Answer:
Corporate Finance With Connect Access Card
ISBN: 978-1259672484
10th Edition
Authors: Stephen Ross ,Randolph Westerfield ,Jeffrey Jaffe