Question
Assume Stocks A and B have the following characteristics: Stock Expected Return Standard Deviation A 9.6% 33.6% B 15.6% 62.6% The covariance between the returns
Assume Stocks A and B have the following characteristics: |
Stock | Expected Return | Standard Deviation |
A | 9.6% | 33.6% |
B | 15.6% | 62.6% |
The covariance between the returns on the two stocks is .0016. |
a. | Suppose an investor holds a portfolio consisting of only Stock A and Stock B. Find the portfolio weights, XA and XB, such that the variance of her portfolio is minimized. (Hint: Remember that the sum of the two weights must equal 1.) (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) |
Portfolio weights | |
Stock A | |
Stock B | |
b. | What is the expected return on the minimum variance portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Expected return | % |
c. | If the covariance between the returns on the two stocks is .05, what are the minimum variance weights? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) |
Minimum variance weights | |
Stock A | |
Stock B | |
d. | What is the variance of the portfolio in part (c)? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) |
Variance of the portfolio |
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