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

Multiple Choice

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

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