1. Mia is considering investing in two stocks, A and B. The expected annual return on A is 8% and the expected annual return on B is 2%. The rates of return from these two companies' shares have a correlation coefficient of = 0.3. The standard deviation of the rates of return on A is 0.03 and the standard deviation of the return on B is 0.04. The market allows you to hold negative amounts of either asset.

(a) Calculate the weights of A and B such that you create a portfolio C with a minimum global variance.

(b) Find the expected return and the standard deviation of portfolio C.

(c) What is the Mean Variance Frontier? Make sure you provide a diagram (generated using EXCEL) on which A and B stocks as well as the minimum variance portfolio C are clearly depicted.

(d) Explain the concept of efficient frontier and identify it on the diagram from part (c).

(e)Explain whether you can invest efficiently in one stock only. Can this stock be your optimal portfolio? If yes, explain why. If not, explain how you find your optimal investment.