Consider the following two stocks:

stock 1 has expected return e1 = 6 and standard deviation s1 = 3.5

stock 2 has expected return e2 = 12 and standard deviation s2 = 25.

Assume that the variance of the minimum variance portfolio is zero.

Find expected return of the minimum variance portfolio is when the correlation between the returns on the two stocks is:

- negative or positive.

If, in addition, we assume that returns are negatively correlated,

And utility maximizing investor has an expected utility given by EU = ep 0.025vp they will choose a portfolio with:

Which:

• expected return (ep)
• variance (vp) (d).