Microsoft Word - QANT 620_Finalexam.doc

Q2. Betsy Moore wants to invest in the stocks of companies A, B, C, and D, whose annual returns for the past twelve years are as follows:

Annual Return

Year 1 2 3 4 5 6 7 8 9 10 11 12

A 8.00% 9.20% 7.70% 6.60% 18.50% 7.40% 13.00% 22.00% 14.00% 20.50% 14.00% 19.00%

B 12.00% 8.50% 13.00% 2.60% 7.80% 3.20% 9.80% 13.50% 6.50% 3.50% 17.50% 14.50%

Microsoft Word - QANT 620_Finalexam.doc

Betsy Moore wants to invest in the stocks of companies. Suppose that Betsy is completely riskaverse. What percentage of her portfolio should be invested in each stock and what would the expected risk and return be on the resulting portfolio?