Question: * Please do NOT use excel, provide answer via written response * Assume analysts provide the following types of information. Assume short sales are allowed.

* Please do NOT use excel, provide answer via written response *

Assume analysts provide the following types of information. Assume short sales are allowed.

Stock Mean Return Standard Deviation
A 6% 6%
B 7% 8%
C 9% 12%
risk free rate 2%

The pairwise coefficient of correlation between all three stocks is 0.4, i.e. AB=AC=BC=0.4.

a) What the rate of return and the standard deviation of an equal weighted portfolio consist of all three stocks?

b) What are the weights of A and B in the portfolio consist of A and B only with highest Sharpe ratio? What is the Sharpe ratio of the portfolio?

c) Find the weights of stock A, B and C in the global minimum variance portfolio.

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