QUESTION 2, MEAN-VARIANCE PORTFOLIO ANALYSIS

Stocks A has an expected daily return of 0:15% and B has an expected daily return of 0:20%, and they have following variance-covariance matrix,

	A	B
A	0.45%
B	-0.30%	0.70%

Assume that the investor has no leverage and cannot short either stock. A. What is the correlation between stocks A and B: (a) -0.53; (b) -0.38; (c) 0.19; (d) -0.23;

B. What weight should the investor assign to stock A to maximize expected return: (a) 0.29; (b) 0.0; (c) -0.25; (d) 0.47; C. What is the variance of the maximum expected return portfolio: (a) -0.20%; (b) 0.70%; (c) 0.50%; (d) 0%; D. Assuming the risk free rate is zero, what is the Sharpe ratio of an equal weighted portfolio: (a) 0.25; (b) 1.26; (c) 1.69; (d) 0.47; Now suppose that you have $25; 000 invested equally in the two stocks: E. Compute the 5-day value at risk at the 95% conOdence level: (a) 0.14% (b) -$192.04; (c) -$243.16; (d) -$177.84; F. Compute the 25-day value at risk at the 99% conOdence level: (a) -$859.38; (b) -$761.14; (c) $511.21; (d) -$937.43;