Question: The correlation coefficient between stocks A and B is 0.6. Both stocks have an expected return of 12% and a standard deviation of 20%. In

The correlation coefficient between stocks A and B is 0.6. Both

The correlation coefficient between stocks A and B is 0.6. Both stocks have an expected return of 12% and a standard deviation of 20%. In addition, you calculated that the minimum variance portfolio (mvp) of A and B consists of 50% of A and 50% of B.

a. Compute standard deviation and expected return of mvp.

b. Suppose risk free asset has expected rate of return of 5%. Would portfolio of assets A and B with standard deviation of 19% and expected rate of return of 10% be optimal portfolio to combine with the risk free asset?

4. The correlation coefficient between stocks A and B is: p .6. Both stocks have an expected return of 12% and a standard deviation of 20%. In addition, you calculated that minimum variance portfolio (mvp) of A and B consists of 50% of A and 50% of B. a) Compute standard deviation and the expected return of mvp. IRRELEVANT b) Suppose risk free asset has expected rate of return of 5%. Would portfolio of assets A and B with standard deviation of 19% and expected rate of return of 10% be optimal portfolio to combine with the risk free asset? Explain (standard deviation-expected return plot may be useful)

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