Problem:
Tyler Trucks stock has an annual return mean and standard deviation of 8 percent and 27 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 19 percent and 63 percent, respectively. Your portfolio allocates equal funds to Tyler Trucks stock and Michael Moped Manufacturing stock. The return correlation between Tyler Trucks and Michael Moped Manufacturing is .5.
Required:
What is the smallest expected loss for your portfolio in the coming month with a probability of 1 percent?
Note: Show all workings.