Question: Consider the following data on returns (R), standard deviation (), and correlations (r) for two stocks: R 1 = 10%, 1 = 4%, R 2

Consider the following data on returns (R), standard deviation (), and correlations (r) for two stocks:

R1 = 10%, 1 = 4%, R2 = 20%, 2 = 6%, r12 = -1.0

Find the weights of stocks 1 and 2 (W1 and W2) that will yield the minimum variance of a portfolio of stocks 1 and 2.

1.

W1=0.60, W2=0.40
2.

W1=0.40, W2=0.60
3.

W1=0.50, W2=0.50

4. W1=0.70, W2=0.30

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Consider the following data on returns (R), standard deviation (), and correlations (r) for two stocks: R 1 = 10%, 1 = 4%, R 2 = 20%, 2 = 6%, r 12 = -1.0 Find the weights of stocks 1 and 2 (W1 and...

Q:

Consider the following data on returns (R), standard deviation (), and correlations (r) for stocks (asset 1), bonds (asset 2) and real estate (asset 3): R 1 = 10%, 1 = 4%, R 2 = 20%, 2 = 10%, R 3 =...

Q:

Consider the following data on returns (R), standard deviation (), and correlations (r) for stocks (asset 1), bonds (asset 2) and real estate (asset 3): R1 = 10%, 1 = 4%, R2 = 20%, 2 = 10%, R3 = 13%,...

Q:

"Consider the following data on returns (R), standard deviation (), and correlations (r) for stocks (asset 1), bonds (asset 2) and real estate (asset 3): R 1 = 10%, 1 = 4%, R 2 = 20%, 2 = 10%, R 3 =...

Q:

Consider the following data on returns (R), standard deviation (C), and correlations (1) for stocks (asset 1), bonds (asset 2) and real estate (asset 3): R1 - 10%, 01 - 4%, R2 - 20%, 02 - 10%, R3 =...

Q:

Consider the following data on returns (R), standard deviation (), weights (W), and correlations (r) for two stocks: R 1 = 10%, 1 = 4%, R 2 = 20%, 2 = 6%, r 12 = -1.0, W1=0.50, W2=0.50 What is the...

Q:

Consider the following data on returns (R), standard deviation (o), and correlations (1) for two stocks: R1 = 10%, 01 = 4%, R2 = 20%, 02 = 6%, r12 = -1.0 Find the weights of stocks 1 and 2 (W1 and...

Q:

Question 1 (CAPM) Consider the following data representing security analyst's estimates of the expected return on two stocks, A and D, as well as the market expected return in each of the two...

Q:

Consider the following data on return (R), standard deviation(o), weighs (W), and correlation (r) for two stocks: R1=10%. o1= 4%, R2=20%, o2=6%, r12= -1.0, W1=.50, W2=.50 . What is the standard...

Q:

4. You are given the following data for four stocks. Standard Deviation 5. Portfolio Expected Return .20 .10 .22 .08 .20 .40 .35 .18 a. Plot the risk versus return for each stock with standard...

Q:

The probability that the first success occurs on or after the third trial if each has a probability 0.2 of success. Compute the above probabilities. In each case, sketch the probability distribution...

Q:

Why are the tires for trucks carrying gasoline and other flammable fluids manufactured to be electrically conducting?

Q:

Which of the following statements is CORRECT? Group of answer choices Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of...

Q:

Discuss several ways ( at least four ways ) to improve the requirement process and thus, a project team can avoid a situation where too many changes to the project requirements occur at the later...

Q:

Gain HRM-relevant knowledge about the challenges of the lingerie industry.

Q:

Understand why firms should adopt and implement HRM practices that are specifically designed to foster an age-diverse workplace.

Q:

What positive outcomes could emerge for Company A in the long term after the implementation of the AC for senior leaders?