ONLY PART II

stock values 140 company A company B 120 100 80 60 40 20 0 2000 2005 2010 2015 Figure 2: Representation of financial data. You are responsible for a portfolio that consists of 3,000 stocks of company A and 1,000 stocks of company B. The data of daily stock returns are depicted in Figure 2. 1. (a) What is the portfolio's value on the last day reported for which the stock value of company A was 89.1 and of company B was 70.65? (b) At that time, what is the proportion of the portfolio invested in the stocks of company A and in the stocks of company B? II. Derive the variance of the return of a portfolio of two assets using the variances of the retums of the single assets and their correlation. (Notice that the portions may differ.) Carefully justify all steps in your derivation