38. Minimum Variance Portfolio Assume Stocks A and B have the following characteristics: Stock Expected Return...
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38. Minimum Variance Portfolio Assume Stocks A and B have the following characteristics: Stock Expected Return Standard Deviation A 11% 43% B 15 65 The covariance between the returns on the two stocks is .003. 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 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 -.05, what are the minimum variance weights? d. What is the variance of the portfolio in part (c)? 38. Minimum Variance Portfolio Assume Stocks A and B have the following characteristics: Stock Expected Return Standard Deviation A 11% 43% B 15 65 The covariance between the returns on the two stocks is .003. 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 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 -.05, what are the minimum variance weights? d. What is the variance of the portfolio in part (c)?
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