Minimum variance portfolio combination

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1. The ER for Stock A is 10% and the ER for Stock B is 5.0% while the SD for A is 15% and the SD for B is 6.0%. The CORR(A,B) equals +0.20. The minimum variance portfolio combination (nearest percent) is:

a) 42% in Stock A and 58% in Stock B.

b) 38% in Stock A and 62% in Stock B.

c) 28% in Stock A and 72% in Stock B.

d) 8% in Stock A and 92% in Stock B.

2. A client wants to combine one of 2 stocks, D or E, with C. Stocks D and E both have the same expected return of 15%, and risk of 20%. However, CORR(C,D) equals +1.00 and CORR(C,E) is +0.30. To gain diversification benefits, you advise the client:

a) D is too risky.

b) E is too risky.

c) to combine D with C.

d) to combine E with C.

Reference no: EM131910248

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