A stock fund has a standard deviation of 16% and a bond fund has a standard deviation of 4%. The correlation of the two funds is .11. What is the weight of the stock fund in the minimum variance portfolio?
A)3.47%
B)6.48%
C)11.92%
D)14.67%
E)18.22%

Question

Quizplus · Accepted Answer

The weight of the stock fund in the minimum variance portfolio is 3.47%. This is because the correlation between the two funds is low, so the benefits of diversification are small. As a result, the optimal portfolio will have a relatively low weight in the stock fund.

A Stock Fund Has a Standard Deviation of 16% and a Bond