Exhibit 7B -Refer to Exhibit 7B

question 1

Multiple Choice

Exhibit 7B.l
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:
$$\mathrm { W } _ { 1 } = \left[ \mathrm { E } \left( \sigma _ { 1 } \right) ^ { 2 } - \mathrm { r } _ { 1.2 } \mathrm { E } \left( \sigma _ { 1 } \right) \mathrm { E } \left( \sigma _ { 2 } \right) \right] \div \left[ \mathrm { E } \left( \sigma _ { 1 } \right) ^ { 2 } + \mathrm { E } \left( \sigma _ { 2 } \right) ^ { 2 } - 2 r _ { 1.2 } \mathrm { E } \left( \sigma _ { 1 } \right) \mathrm { E } \left( \sigma _ { 2 } \right) \right]$$
-Refer to Exhibit 7B.1.What is the value of W₁ when r₁.₂ = -1 and E(s₁) = .10 and E(s₂) = .12?

• A) 45.46%
• B) 50.00%
• C) 59.45%
• D) 54.55%
• E) 74.55%

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Definitions:

Standard Deviation

Standard deviation is a measure of the dispersion or spread of a set of data points relative to its mean, indicating how spread out the data points are.

Salaries

Payments made regularly by an employer to an employee, especially a professional or white-collar worker.

5-Number Summary

A statistical summary that provides five key data points: minimum, first quartile, median, third quartile, and maximum.

Smallest Observation

The minimum value recorded in a set of data.