Deck 6: An Introduction to Portfolio Management: Part B

Question 1

-Refer to Exhibit 6B.1. Show the minimum portfolio variance for a portfolio of two risky assets when r_1.2 = -1.

A) E( $\sigma$ 1) $\div$ [E( $\sigma$ 1) + E( $\sigma$ 2)]
B) E( $\sigma$ 1) $\div$ [E( $\sigma$ 1) - E( $\sigma$ 2)]
C) E( $\sigma$ 2) $\div$ [E( $\sigma$ 1) + E( $\sigma$ 2)]
D) E( $\sigma$ 2) $\div$ [E( $\sigma$ 1) - E( $\sigma$ 2)]
E) None of these are correct.

Answer 1

E( $\sigma$ 2) $\div$ [E( $\sigma$ 1) + E( $\sigma$ 2)]

Question 2

-Refer to Exhibit 6B.1. What is the value of W₁ when r_1.2 = -1 and E( $\sigma$ 1) = .10 and E( $\sigma$ 2) = .12?

A) 45.46 percent
B) 50.00 percent
C) 59.45 percent
D) 54.55 percent
E) 74.55 percent

Answer 2

54.55 percent