Portfolio Choice

Suppose we have assets A and B with the following distribution of returns:

a$.$ Compute the expected returns for assets A and $B,r_A$ and $r_B.$

b$.$ Compute the variances of A and $B,{}_A^2$ and ${}_B^2.$

c$.$ Compute the covariance of A and $B,{}_{AB}.$

d$.$ Use the formulas for portfolio returns and risk to write the expected portfolio

return and standard deviation for an equally weighted portfolio of A and $B,r_p$ and

${}_p.$

e$.$ Use the formula to find the portfolio weights, $a^{**}$ and $1-a^{**}$ for the minimum

variance portfolio of A and B$.$

f$.$ Find the portfolio return and standard deviation of the minimum variance

portfolio.