The National Basketball Association (NBA) has hired you as a consultant to figure out what the proper mix of Eastern and Western teams should be. An Eastern team has a return variance of .04, a Western team has a return variance of .09, and the correlation between the returns of an Eastern and a Western team is .25. Assume that all Eastern teams are identical and all Western teams are identical. What should the ratio of Eastern to Western teams be if the NBA wants to minimize return variance?

AppendixLO1