Exhibit 7A $\sigma$ ₂)² - R_{1 $\sigma$ 1)E $\sigma$ 2)] -[E $\sigma$ 1)² + E}

Exhibit 7A.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The general equation for the weight of the first security to achieve the minimum variance (in a two stock portfolio) is given by:
W₁ = [E( $\sigma$ ₂) ² - r_1.2 E( $\sigma$ ₁) E( $\sigma$ ₂) ] -[E( $\sigma$ ₁) ² + E( $\sigma$ ₂) ² - 2 r_1.2E( $\sigma$ ₁) E( $\sigma$ ₂) ]
-Refer to Exhibit 7A.1. What weight of security 1 gives the minimum portfolio variance when r_1.2 = .60, E( $\sigma$ ₁) = .10 and E( $\sigma$ ₂) = .16?

A) .0244
B) .3679
C) .5697
D) .6309
E) .9756