Suppose further that the risk-free rate is 2%. What is the Sharpe Ratio of the optimal portfolio? Describe the portfolio weights of the optimal portfolio?

Observe returns on stocks A and B on three dates:

Returns

Date Stock A Stock B

1 3% 4%

2 4% 6%

3 1% 3%

What is the standard deviation of the individual stock returns? What is the covariance? What is the correlation?

You form a portfolio that is 30% invested in stock A and 70% invested in stock B. What are the portfolio returns on dates 1, 2, and 3? What is the mean return and the return standard deviation of your portfoli