The risk free rate is 0.5%. Using the data below:

(i)  Calculate the variance of Stock A and variance of Stock B

(ii) Calculate the correlation coefficient between Stock and Stock B

 

Calculate the weights of Stock A and Stock B in the optimal risky asset portfolio.

State Probability Return Stock A (%) 8% 7% 6% 9% 8% 1 0.1 2 0.2 3 0.2 4 0.3 5 0.2 1 10% 13% 12% 14% 15% E(Ra) 13.2% Std Dev A 1.5% Return Stock B (%) E (Rb) 7.7% Std Dev B 1.1%