# Question

Assume stocks A and B have the following characteristics:
The covariance between the returns on the two stocks is .01.
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 his portfolio is minimized. Remember that the sum of the two weights must equal 1.
b. What is the expected return on the minimum variance portfolio?
c. If the covariance between the returns on the two stocks is –.15, what are the minimum
variance weights?
d. What are the variance and standard deviation of the portfolio in part (c)?

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