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5. Variance Covariance Matrix and Asset Allocation Model (Markowitz Portfolio Model): Suppose the variance covariance matrix...

5. Variance Covariance Matrix and Asset Allocation Model (Markowitz Portfolio Model): Suppose the variance covariance matrix for two stocks is given as:

Stock 1

Stock 2

Stock 1

0.025

0.015

Stock 2

0.030

The expected rate of returns on Stocks 1 and 2 are 10% and 12%, respectively. The average return to risk-free treasury is 5%. Given that the objective of the investor is a minimum-risk portfolio, find the optimum weights of each stock in the portfolio.

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