A stock portfolio (A) has an expected return of 13.5% and standard deviation of 27.0%, and a bond

portfolio (B) expected return of 6.5% and standard deviation of 13.0%. THE optimal risky portfolio of A

and B has an expected return of 10.42% and a standard deviation of 16.68%. The correlation between A and

B is 0.10 and the risk-free rate is 4.5%. Maggie has risky portfolio of A and B with weights of 65.0% and

35.0%, respectively. She would like for you to create an optimal complete portfolio for her using THE

optimal risky portfolio. 6 pts

a. Does THE optimal risky portfolio have more weight or less weight in the stock portfolio than does

Maggies risky portfolio?

b. Compute the Sharpe ratio of the CAL.

c. Maggie has risk aversion A=2.5. Compute the expected return and standard deviation for Maggies

optimal complete portfolio.

d. What will be the value of Maggies investment positions in the stock portfolio, the bond portfolio

and the risk-free asset if her optimal complete portfolio has a total value of $820,000?

Use the information in question #8 but assume the correlation between A and B is -0.10. Find the

expected return and standard deviation of i) Maggies optimal risky portfolio (in the absence of a risk-free asset),

and ii) THE optimal risky portfolio (given the existence of the 4.5% risk-free asset)