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

question 22

Multiple Choice

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

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Definitions:

Exchange Gains/Losses

The financial result stemming from the fluctuation in exchange rates affecting the value of foreign currency transactions and holdings.

Strengthening Currency

A currency that is increasing in value compared to another currency, often due to improved economic indicators or increased demand.

Exchange Gain

A financial gain resulting from a favorable change in exchange rates affecting the value of foreign-currency-denominated assets or liabilities.

Current-Rate Method

A method used in translating the financial statements of foreign subsidiaries, where all assets and liabilities are translated at the current exchange rate.