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its a review guide for a test on portfolio management risk return and capital market theory.

(9) A formula aproach for solving for the standard deviation of a two asset portfolio. Variance(p) = Way 2* Var(a) + WbY2Var(b) + 2W(a)W(b)Cov(a,b) Sigma(p) = square root of above Prior Example: 0.50000 W(a) Var(a) W(b) Var(b) Cov(a,b) 0.50000 Var(p) Sigma(p) (10) What would happen with changes in the asset weighting to the risk and return of the portfolio? EB) 0.000 E(b) 0.000 EP) Sigmap) E{p) Sigma(p) Wa) 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 W(b) 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Wa) 0.70 0.69 0.68 0.67 0.66 0.65 0.64 0.63 0.62 Wib) 0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38 (11) A formula approach to solving for the minimum variance portfolio W(a) [Var(b) - cov(a,b)]/[Var(a) + Var(b) - 2cov(a,b)] Example: Var A Var B Cov(a,b) W(a) (9) A formula aproach for solving for the standard deviation of a two asset portfolio. Variance(p) = Way 2* Var(a) + WbY2Var(b) + 2W(a)W(b)Cov(a,b) Sigma(p) = square root of above Prior Example: 0.50000 W(a) Var(a) W(b) Var(b) Cov(a,b) 0.50000 Var(p) Sigma(p) (10) What would happen with changes in the asset weighting to the risk and return of the portfolio? EB) 0.000 E(b) 0.000 EP) Sigmap) E{p) Sigma(p) Wa) 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 W(b) 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 Wa) 0.70 0.69 0.68 0.67 0.66 0.65 0.64 0.63 0.62 Wib) 0.30 0.31 0.32 0.33 0.34 0.35 0.36 0.37 0.38 (11) A formula approach to solving for the minimum variance portfolio W(a) [Var(b) - cov(a,b)]/[Var(a) + Var(b) - 2cov(a,b)] Example: Var A Var B Cov(a,b) W(a)