What is the expected rate of return of the portfolio

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Two stocks have expected return rates µ1,µ2, respectively, variances σ1^2, σ2^2 respectively, and correlation coe?cient c12 = −1. Consider aportfolio of weight allocation w1 in ?rst stock and w2 in the second stock, where w1 + w2 = 1 (the weights can be positive or negative).

(a) What is the expected rate of return µV of the portfolio and the variance σ2 V of the portfolio?

(b) What is the minimum possible value of σV , and for which weights w1, w2 is this minimum value attained? Does this portfolio require short selling of any of the assets?

Reference no: EM131531185

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