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4. You have been hired as a portfolio manager for a stock brokerage. Your first job is to invest $100,000 for a client in
4. You have been hired as a portfolio manager for a stock brokerage. Your first job is to invest $100,000 for a client in a portfolio consisting of two assets. The first asset generates a sure rate of return of 4% in interest. The second asset is a risky stock with an expected rate of return of 26%, and a standard deviation of 10%. Your client wants a portfolio that generates as high an expected rate of return as possible with a standard deviation no larger than 4%. (a) How much of the client's money should you invest in the safe asset and risky asset? (b) Now say the client wants to generate an expected rate of return of 15%. Now how much should be invested in the safe and risky assets? What is the standard deviation of this portfolio?
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