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

question 20

Multiple Choice

Exhibit 7B.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( $\sigma$ ₁) 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 7B.1. Show the minimum portfolio variance for a portfolio of two risky assets when r_1.2 = -1.

• A)E(\(\sigma\)₁) /[E(\(\sigma\)₁) + E(\(\sigma\)₂)]
• B)E(\(\sigma\)₁) / [E(\(\sigma\)₁) - E(\(\sigma\)₂)]
• C)E(\(\sigma\)₂) -[E(\(\sigma\)₁) + E(\(\sigma\)₂)]
• D)E(\(\sigma\)₂) /[E(\(\sigma\)₁)- E(\(\sigma\)₂)]
• E)None of the above

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