Question: There are only two risky assets A and B with expected returns F = 30 % and r = 20 % The covariance matrix

There are only two risky assets A and B with expected returns

There are only two risky assets A and B with expected returns F = 30 % and r = 20 % The covariance matrix of their returns is (a) [0.0576 0.0288 [0.0288 0.0256] Solve for the minimum-variance portfolio of the two risky assets, as well as the expected rate of return and standard deviation of the portfolio. (9 marks) (b) Solve for an efficient portfolio with expected return 29.25%. (8 marks) (c) Explain how the returns of the two portfolios derived in (a) and (b) are correlated. (3 marks)

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