Solve 1&2

Assume the following statistics for Stocks A, B, and C: Stock A Expected return 20.0% Standard deviation 23.2% Stock B 14.0% 13.6% Stock C 10.0% 19.5% Stock B Stock C The correlation coefficients between the three stocks are: Stock A Stock A 1 Stock B 0.286 Stock C 0.132 1 -0.605 1. An investor seeks a portfolio return of 12 percent. Which combinations of the three stocks accomplish this objective? Which of those combinations achieves the least amount of risk? 2. An investor seeks a maximum variance of the portfolio of 1 percent. Which combinations of the three stocks accomplish this objective? Which of those combinations achieves the highest expected return? Equation Needed: E,)=(x E(8)] =,,, where x proportion of portfolio where x, = proportion of total investment in Security i invested in security i and P. = correlation coefficient between x = 1 Security i and Security j