5 Variance Covariance Matrix and Asset Allocation Model (Markowitz Portfolio Model) Suppose the variance covariance matrix for two stocks is given as Stock 1 Stock 2 Stock 1 0 025 0 015 Stock 2 0 030 The expected rate of returns on Stocks 1 and 2 are 10 and 12 , respectively The average return to risk free treasury is 5 Given that the objective of the investor is a minimum risk portfolio, find the optimum weights of each stock in the portfolio

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Question: 5. Variance Covariance Matrix and Asset Allocation Model (Markowitz Portfolio Model): Suppose the variance covariance matrix for two stocks is given as: Stock 1 Stock

5. Variance Covariance Matrix and Asset Allocation Model (Markowitz Portfolio Model): Suppose the variance covariance matrix for two stocks is given as:

	Stock 1	Stock 2
Stock 1	0.025	0.015
Stock 2		0.030

The expected rate of returns on Stocks 1 and 2 are 10% and 12%, respectively. The average return to risk-free treasury is 5%. Given that the objective of the investor is a minimum-risk portfolio, find the optimum weights of each stock in the portfolio.

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