QUESTION 1

W_(D,Min)=(s_E^2-Cov(r_E,r_D ))/(s_D^2+s_E^2-2Cov(r_E,r_D ) )=(s_(E )^2-?s ?_E s_D ?_(E,D))/(s_D^2+s_E^2-2s_E s_D ?_(E,D) )

Thus:

Cov_((r_(E,) r_D))=0.2*0.26*0.14=0.00728

w_(D,Min)=(?0.26?^2*0.00728)/(?0.14?^2+?0.26?^2-2*0.26*0.14*0.2)=0.8304=83.04%

W_(E,Min)=1-0.8304=0.1696=16.96%

the expected return and standard deviation of the portfolio will be calculated

Expected return:

E[r_? ]=0.83*9%+0.17*14%=9.848%

Variance:

s_P^2=?0.83?^2*?14%?^2+?0.17?^2 ?*26%?^2+2*0.83*0.17*14%*26%*0.2=0.0175

Standard deviation

s=v(s^2 )=0.1323

E(r_c )=W_P E(r_p )+(1-W_p )E(r_F )

17%=W_P×11.1%+(1-W_p )×5%

W_P=1.967

W_F=1-1.967=-0.967