5 Consider two assets A and B for which return distributions can be summarized as follows E Ra 3 E Rb 7 variance 1 2 variance 4 2 standard deviation 1 standard deviation 2 r AB 0 What is the risk of the minimum risk portfolio composed of these two Stocks (Hint Use the calculus to minimize s p 2 ) Is the risk of the minimum risk portfolio below that of every constituent asset What is the expected ROR on the minimum risk portfolio Consider two other assets A and B, which are identical (in statistical summary), respectively, to A and B above except that r AB 1 Write down the answers to the same question as in 5

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Question: 5. Consider two assets A and B for which return distributions can be summarized as follows E[Ra]=3% E[Rb]= 7% variance= 1%^2 variance=4%^2 standard deviation= 1%

5. Consider two assets A and B for which return distributions can be summarized as follows

E[Ra]=3% E[Rb]= 7%

"variance"= 1%^2 "variance"=4%^2

"standard deviation"= 1% "standard deviation"= 2%

r_AB = 0

What is the risk of the minimum risk portfolio composed of these two Stocks? (Hint: Use the calculus to minimize s_p²). Is the risk of the minimum risk portfolio below that of every constituent asset? What is the expected ROR on the minimum risk portfolio?

Consider two other assets A and B, which are identical (in statistical summary), respectively, to A and B above except that r_AB = 1. Write down the answers to the same question as in 5.

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