Use the table for the question(s) below.
Consider the following expected returns, volatilities, and correlations:
-Consider a portfolio consisting of only Duke Energy and Microsoft.The percentage of your investment (portfolio weight)that you would place in Duke Energy stock to achieve a risk-free investment would be closest to:
A) 15%
B) 4%
C) 23%
D) 10%

Question

Use the table for the question(s) below.
Consider the following expected returns, volatilities, and correlations: 
-Consider a portfolio consisting of only Duke Energy and Microsoft.The percentage of your investment (portfolio weight)that you would place in Duke Energy stock to achieve a risk-free investment would be closest to:
A) 15% 
B) 4% 
C) 23% 
D) 10%

Quizplus · Accepted Answer

B) Var(R_p) = x₁²^Var(R₁) + x₂²^Var(R₂) + 2X₁X₂Corr(R₁,R₂)SD₁SD₂ ₀₌x₁²(.06)² + (1 - x₁)²(.24)² + 2( x₁)(1 - x₁)(-1)(.06)(.24) .0036x₁²+ .0576(1 - x₁)² = 2( x₁)(1 - x₁)(.06)(.24) .0612x₁²+ .1152x₁ + .0576= .029376 x₁ - .029376x₁² .090576x₁²+ .085824.x₁ + .0576= 0 x₁ = .037

Use the Table for the Question(s) Below