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Assume Stocks A and B have the following characteristics: Stock Expected Return Standard Deviation A 9.4% 33.4% B 15.4% 62.4% The covariance between the returns
| Assume Stocks A and B have the following characteristics: |
| Stock | Expected Return | Standard Deviation |
| A | 9.4% | 33.4% |
| B | 15.4% | 62.4% |
| The covariance between the returns on the two stocks is .0014. |
| 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.) |
| 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., .1616.) |
| 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., .1616.) |
A. stock A weight?; Stock B weight?
C. stock A weight?; Stock B weight?
D. Portfolio variance?
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