Question: Exercise 2 Consider two stocks A and B with expected returns Ri R2 variances ? ? and covariance ?12-Suppose short sales are allowed and risk

Exercise 2 Consider two stocks A and B with expected returns

Exercise 2 Consider two stocks A and B with expected returns Ri R2 variances ? ? and covariance ?12-Suppose short sales are allowed and risk free asset Ry exists. Show that the composition of the optimal portfolio is C1- Note: Ra=R,-R, and RB=R2-Ry

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