Final answer:
The expected return on the minimum variance portfolio can be calculated using the weights of each stock and their respective expected returns. The weights can be determined by considering the standard deviations of the stocks. In this case, the expected return on the minimum variance portfolio is approximately 17.14%.
Step-by-step explanation:
The expected return on the minimum variance portfolio can be calculated using the formula:
Expected return = wA * Expected return on stock A + wB * Expected return on stock B
where wA and wB are the weights or proportions of the portfolio invested in stocks A and B respectively.
In this case, the correlation coefficient between the return on stock A and B is 0%, which means they are not correlated. Therefore, the minimum variance portfolio can be constructed by investing in both stocks in such a way that the weights are inversely proportional to their standard deviations. The standard deviation of stock A is 20% and the standard deviation of stock B is 15%. So, the weights can be determined as follows:
wA = (1 / (standard deviation of stock A + standard deviation of stock B)) * standard deviation of stock B
wB = (1 / (standard deviation of stock A + standard deviation of stock B)) * standard deviation of stock A
Substituting the given values:
wA = (1 / (20 + 15)) * 15 = 0.4286
wB = (1 / (20 + 15)) * 20 = 0.5714
Now, we can calculate the expected return on the minimum variance portfolio:
Expected return = 0.4286 * 20% + 0.5714 * 10% = 17.14%
Therefore, the expected return on the minimum variance portfolio is approximately 17.14%.