10.19 Assume that there are two stocks with the following characteristics. The covariance between the returns on the stocks is 0.001.

a. What is the expected return on the minimum variance portfolio? (Hint: Find the portfolio weights XA and XB such that the portfolio variance is minimized. Remember that the sum of the weights must equal 1.)

b. If Cov(RA, RB) 0.02, what are the minimum variance weights?

c. What is the portfolio variance when Cov(RA, RB) 0.02?

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Expected Return Standard Deviation A 0.05 0.1 B 0.10 0.2