The stock of Bruin, Inc., has an expected return of 18 percent and a standard de

Question

The stock of Bruin, Inc., has an expected return of 18 percent and a standard deviation of 32 percent. The stock of Wildcat Co. has an expected return of 10 percent and a standard deviation of 36 percent. The correlation between the two stocks is .36. Calculate the expected return and standard deviation of the minimum variance portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Cor(X,Y) =Cov(X,Y)/sd(X)sd(Y)

Cov (X,Y) = Cor (X,Y) * sd(X)sd(Y) =.36 * .32 *.36 =.04147

Expected return=.5 *.18 + .5 *.10=.14

Standard deviation=.5^2 * .32 + .5^2 * .36 + 2* .5 *.5 * .04147=.25 * .32 + .25 * .36 + .25 * 0.04147=.18

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