(Mean and variance portfolio of two risky assets and a risk-free asset)

Consider the following data for stocks X and Y and a risk-free asset:

a. What is the return and standard deviation of the minimum variance portfolio of stocks X and Y?

b. What is the return and standard deviation of a portfolio composed of 30% of the minimum variance portfolio and 70% of the risk-free asset? Repeat this question with weights of 50% for the risk-free asset and the minimum variance portfolio.

c. Mary Jones asks you to create a portfolio composed of the risk-free asset and the minimum variance portfolio. Mary wants an expected return of 9%. What will the percentage of the portfolio invested in the risk-free asset and in the minimum variance portfolio?

d. Kaid Benfield wants a portfolio composed of the risk-free asset and the minimum variance portfolio. Find a portfolio for Kaid that has a standard deviation of returns of 5%.

Transcribed Image Text:

A B C 1 RETURNS OF STOCKS X AND Y 2 X Y 3 Average return 19.00% 13.00% 4 Variance 0.09 0.04 5 Standard deviation 30% 20% 6 Covariance of return 0.01 7 8 Risk-free return 3.00%