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John is a fund manager who is going to set up a portfolio with share A and share B. Details of the shares are shown
John is a fund manager who is going to set up a portfolio with share A and share B. Details of the shares are shown in the following table.
| Share A | Share B |
Expected Return | 15% | 10% |
Standard Deviation | 10% | 5% |
Correlation | 25% |
|
John has invested w1% and w2% of his capital in share A and share B respectively. Suppose w1% + w2% = 100%. Also, w1 andw2 are non-negative numbers. Answer the following questions.
b. Calculate the set of weights, w1 and w2, in the portfolio that gives the lowest risk. (11 marks)
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