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: W 1 = [E($\sigma$ 2 ) 2 - r 1.2 E($\sigma$ 1 )E($\sigma$ 2 )] -[E($\sigma$ 1 ) 2 + E($\sigma$ 2 ) 2 - 2 r 1.2 E($\sigma$ 1 )E($\sigma$ 2 )] -Refer to Exhibit 7A.1. Show the minimum portfolio variance for a two stock portfolio when r_1.2 = 1. A)E($\sigma$₂) -[E($\sigma$₁) -E($\sigma$₂)] B)E($\sigma$₂) -[E($\sigma$₁) + E($\sigma$₂)] C)E($\sigma$₁) - [E($\sigma$₁) -E($\sigma$₂)] D)E($\sigma$₁) /[E($\sigma$₁) + E($\sigma$₂)] E)None of the above

Question

Quizplus · Accepted Answer

The correct answer is A because the minimum portfolio variance for a two stock portfolio when r_1.2 = 1 is given by E($\sigma$₂) -[E($\sigma$₁) -E($\sigma$₂)].

Exhibit 7A σ\sigmaσ 2)2 - R1 σ\sigmaσ 1)E σ\sigmaσ 2)] -[E σ\sigmaσ 1)2 + E

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