1. Use the following information to answer the next three questions.

   Month	Stock A Return	Stock B Return
   1/2013	.12	-.06
   2/2013	.05	-.03
   3/2013	.02	.25
   4/2013	.05	.16

   Find the covariance between stocks A and B. Round intermediate steps and your final answer to four decimals.

   		.0037
   		.005
   		-.005
   		-.0037

5 points

QUESTION 10

1. Assume that you want to combine stocks A and B in a portfolio with the lowest possible risk. Find the weight of stock A in your portfolio. Round intermediate calculations to four decimal places.

   		.8006
   		.1994
   		.1746
   		.8254

5 points

QUESTION 11

1. Find the standard deviation of the portfolio you created. Round intermediate steps and your final answer to four decimals.

   		.1131
   		.0128
   		.0211
   		.0004

5 points

QUESTION 12

1. If we allow investors to borrow and lend at the risk-free rate, everyone in the economy would always choose to hold the same set of risky assets.

   True

   False

5 points

QUESTION 13

1. An investor wishes to construct a portfolio by borrowing 15% of his original wealth at the risk-free rate and investing in a stock index. The return on the risk-free asset is 3% and the expected return on the stock index is 20%. Calculate the expected return on the portfolio.

   		.1745
   		.1955
   		.2255
   		.2345