Portfolio Return of a portfolio with two stocks (Stock A and Stock B) is given by following formula:

Portfolio Variance, of a portfolio with two stocks (Stock A and Stock B) is given by following formula:

Portfolio Standard Deviation, of a portfolio with two stocks (Stock A and Stock B) is given by following formula: Now Using above formulae, lets calculate portfolio's return,variance and standard deviation for different possible two factor portfolios:

Ans-a) Combination of Stock A and Stock B with weight of 50% each:

Average Return Stock A= 2.21%

Average Return Stock B = 0.67%

Variance of Stock A = .00684

Variance of Stock B = .00348

Covariance (A,B) = 0.001660157

Hence Portfolio Return = 1.44%

By above formula, Portfolio Variance

Portfolio Variance, of a portfolio with two stocks (Stock A and Stock B) is given by following formula:

Portfolio Standard Deviation, of a portfolio with two stocks (Stock A and Stock B) is given by following formula: Now Using above formulae, lets calculate portfolio's return,variance and standard deviation for different possible two factor portfolios:

Ans-a) Combination of Stock A and Stock B with weight of 50% each:

Average Return Stock A= 2.21%

Average Return Stock B = 0.67%

Variance of Stock A = .00684

Variance of Stock B = .00348

Covariance (A,B) = 0.001660157

Hence Portfolio Return = 1.44%

By above formula, Portfolio Variance

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