Assume Stocks A and B have the following characteristics:

StockExpected Return (%)Standard Deviation (%)A8.532.5B14.561.5

The covariance between the returns on the two stocks is .0025.

a.Suppose an investor holds a portfolio consisting of only Stock A and Stock B. Find the portfolio weights,X_AandX_B, such that the variance of his 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. 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