A retired partner from Goldman Sachs has 1 million dollars available to invest in particular stocks or bonds. Each investment’s annual rate of return depends on the state of the economy in the coming year.

The file P10_69.xlsx contains the distribution of returns for these stocks and bonds as a function of the economy’s state in the coming year. This investor wants to allocate her $1 million to maximize her expected total return 1 year from now.

a. If X  Y  15% (see the file), find the optimal investment strategy for this investor.

b. For which values of X (where 10%  X  20%)

and Y (where 12.5%  Y  17.5%), if any, will this investor prefer to place all of her available funds in the given stocks to maximize her expected total return one year from now?

c. For which values of X (where 10%  X  20%)

and Y (where 12.5%  Y  17.5%), if any, will this investor prefer to place all of her available funds in the given bonds to maximize her expected total return one year from now?