What is the expected return on minimum variance portfolio

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Reference no: EM131821990

Assume Stocks A and B have the following characteristics: Stock Expected Return: A 10% B16% Standard Deviation A 34.0% B 63.0% The covariance between the returns on the two stocks is .0020.

a. Suppose an investor holds a portfolio consisting of only Stock A and Stock B. Find the portfolio weights, XA and XB, such that the variance of her portfolio is minimized. (Hint: Remember that the sum of the two weights must equal 1.) (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)

b. What is the expected return on the minimum variance portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c. If the covariance between the returns on the two stocks is −.05, what are the minimum variance weights? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) d) What is the variance of the portfolio in part (c)?(Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.

Reference no: EM131821990

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