you are considering investing in two securities. Security 1 has a expected return of 12% and a standard deviation of return of 10%. Security 2 has an expected return of 9%and a standard deviation of returns of 8%. The correlation coefficient of returns for the two securities is 0.3.

1. What would the weights be for each of the two securities in the minimum variance portfolio?

W₁=

W₂=

2. Given the weights computed in (a), compute the expected return and standard deviation of this minimum variance portfolio.

Expected return:

Standard deviation:

3. Would you recommend this minimum variance portfolio to an investor who would like to maximize the Sharpe ratio of his investment? Briefly Explain.

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