Question 2 Suppose that the annual returns on two shares are perfectly negatively correlated and that...

Question 2

Suppose that the annual returns on two shares are perfectly negatively correlated and that ?=0.07, ?

?= 0.20,?= 0.12 , and ?= 0.5. Assuming that there are no arbitrage opportunities, by using ???

the Goal Seek function (excel) calculate the weight (proportion) of the two assets that produce the lowest portfolio variance? (Use the Goal Seek function)

MAYBANK

Years	Share price	Dividends
2010	MYR 8.500	0.4400
2011	MYR 8.700	0.3600
2012	MYR 8.200	0.3300
2013	MYR 8.880	0.3100
2014	MYR 9.630	0.3300
2015	MYR 8.720	0.3000
2016	MYR 8.580	0.3200
2017	MYR 8.220	0.3200
2018	MYR 10.100	0.3200
2019	MYR 9.540	0.3900

PETRONAS

Years	Share price	Dividends
2010	MYR 11.100	0.3500
2011	MYR 11.180	0.2500
2012	MYR 15.560	0.3500
2013	MYR 18.560	0.4000
2014	MYR 23.380	0.1500
2015	MYR 22.200	0.1700
2016	MYR 22.880	0.1900
2017	MYR 20.880	0.1900
2018	MYR 17.900	0.2200
2019	MYR 18.080	0.2200

Solutions

Expert Solution

The covarience between stock is as follows:

Resultant table:

proportion of investment in may bank for maximum return and lowest risk

Investment in Petronas is as follows = 1-0.95 = 0.05

95% in may bank

5% in petronas bank

jeff jeffy answered 2 years ago

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