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

Multiple Choice

Exhibit 7B.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( $\sigma$ ₁) ² - r_1.2 E( $\sigma$ ₁) E( $\sigma$ ₂) ] - [E( $\sigma$ ₁) ² + E( $\sigma$ ₂) ² - 2 r_1.2 E( $\sigma$ ₁) E( $\sigma$ ₂) ]
-Refer to Exhibit 7B.1. Show the minimum portfolio variance for a portfolio of two risky assets when r_1.2 = -1.

A) E( $\sigma$ ₁) /[E( $\sigma$ ₁) + E( $\sigma$ ₂) ]
B) E( $\sigma$ ₁) / [E( $\sigma$ ₁) - E( $\sigma$ ₂) ]
C) E( $\sigma$ ₂) -[E( $\sigma$ ₁) + E( $\sigma$ ₂) ]
D) E( $\sigma$ ₂) /[E( $\sigma$ ₁) - E( $\sigma$ ₂) ]
E) None of the above