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An Investment Adviser is helping a couple plan a retirement portfolio. The adviser has recommended three stocks: Allied Electronics, Bank United, and Consolidated Computers. Following
An Investment Adviser is helping a couple plan a retirement portfolio. The adviser has recommended three stocks: Allied Electronics, Bank United, and Consolidated Computers. Following are annual return and variance for each stock and the covariance between stocks:
Stock Combination (i,j) | Covariance |
A,B | .4 |
A,C | .7 |
B,C | .3 |
Stock | Annual Return | Covariance |
Allied Electronics | .14 | .10 |
Bank United | .10 | .04 |
Consolidated Computers | .12 | .08 |
The couple wants a total portfolio return of at least .11. Determine the proportion of each stock to include in the portfolio to minimize the overall risk.
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