An investor can design a risky portfolio based on two shares, A and B. The standard deviation of return on Share A is 20% while the standard deviation on Share B is 15%. The expected return on Share A is 20% while on Share B it is 10%. The correlation coefficient between the return on A and B is 0%. The expected return on the minimum variance portfolio is approximately ________.
A)10.00%
B)13.60%
C)15.00%
D)19.41%

Question

Quizplus · Accepted Answer

The expected return on the minimum variance portfolio can be calculated using the formula for the weights of the minimum variance portfolio and then finding the weighted average of the expected returns. Given the correlation coefficient is 0, the weights are determined by the inverse of the variances. The expected return is approximately 13.60%.

An Investor Can Design a Risky Portfolio Based on Two