You are a portfolio manager of Pinnacle Asset Management Co., a money management firm serving high net worth clients. One of your clients is Nick Revell. His current US equity portfolio (for which you are responsible) is worth $200 million. Nick will add another $50 million to the portfolio and you are thinking of investing the entire $50 million in Apple Computer Inc. Your equity analyst has just presented you with the following information for the coming year:

The correlation between the original portfolio and Apple is 0.4.

Suppose Nick Revell agrees with your decision to invest in Apple Computer, but he wants to rebalance the new portfolio so that risk is reduced to the minimum. What is the expected return of the minimum variance portfolio?

Expected Annual HPR 1% Standard Deviation (%) Nick Revell's original $200 million portfolio Apple Computer Inc