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Exercise 1. You are a mean-variance optimizer with A = 2. There are two risky assets and one risk-free asset. E[ra] = :05, E[rB] =

Exercise 1. You are a mean-variance optimizer with A = 2. There are two risky assets and one risk-free

asset. E[ra] = :05, E[rB] = :07, V ar[ra] = :06, V ar[rB] = :07, and rf = :02. Compute the optimal portfolio

three times with Corr(rA; rB) equal to -.5, 0, and .5. Discuss the results.

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