Question
A portfolio manager is trying to establish a strategic asset allocation for her client Triss Merigold. Triss has a risk tolerance factor of 10. The
A portfolio manager is trying to establish a strategic asset allocation for her client Triss Merigold. Triss has a risk tolerance factor of 10. The characteristics of the two model portfolios under consideration are provided in the table below. Strategic asset allocation choices Portfolio Stock Bond Expected return Variance A 70 30 12.3 17.5 B 30 70 5.6 3.7 Note: All figures are expressed as percentages. (i) Which portfolio represents the optimal strategic allocation for Triss? (ii) What level of risk tolerance would leave Triss indifferent between having Portfolio A or Portfolio B?
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