Stock Annual Return Variance 1. Internet .18 .112 2. Software .12 .061 3. Computer 4. Entertainment .10 .045 .15 .088 He has also estimated the covariances between stocks, as follows: Stock Comblnation (I, J) Covarlances 1, 2 1,3 1,4 .9 .7 .3 2, 3 .8 2, 4 .4 3, 4 .2

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Mark Decker has identified four stocks for his portfolio, and he wants to determine the percentage
of his total available funds he should invest in each stock. The alternative stocks include an
Internet company, a computer software company, a computer manufacturer, and an entertainment
conglomerate. He wants a total annual return of .12. From historical data, he has determined
the average annual return and variance for each of the funds, as follows: Determine the percentage of Mark’s total funds that he should invest in each stock to minimize
his overall risk. 

Stock
Annual Return
Variance
1. Internet
.18
.112
2. Software
.12
.061
3. Computer
4. Entertainment
.10
.045
.15
.088
He has also estimated the covariances between stocks, as follows:
Stock Comblnation (I, J)
Covarlances
1, 2
1,3
1,4
.9
.7
.3
2, 3
.8
2, 4
.4
3, 4
.2
Transcribed Image Text:Stock Annual Return Variance 1. Internet .18 .112 2. Software .12 .061 3. Computer 4. Entertainment .10 .045 .15 .088 He has also estimated the covariances between stocks, as follows: Stock Comblnation (I, J) Covarlances 1, 2 1,3 1,4 .9 .7 .3 2, 3 .8 2, 4 .4 3, 4 .2
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