Question
Consider following return series of two stocks, A and B Stock A Stock B 2.0% 12.5% 5.1% -9.2% 5.5% 8.7% 7.3% 10.4% 6.2% -7.2% 13.0%
Consider following return series of two stocks, A and B
Stock A | Stock B |
2.0% | 12.5% |
5.1% | -9.2% |
5.5% | 8.7% |
7.3% | 10.4% |
6.2% | -7.2% |
13.0% | -9.6% |
1.2% | -5.4% |
-7.0% | 21.0% |
5.5% | 12.4% |
-10.0% | -15.0% |
3.2% | 35.7% |
19.0% | -14.2% |
1.0% | 27.9% |
3.0% | 16.5% |
7.1% | 6.6% |
A. What are the asset allocation percentages of stock A, B, and risk-free asset in the complete portfolio if the investor is seeking 4.5% return on his/her complete portfolio? What is the Sharpe Ratio of optimal risky portfolio? Assume that the prevailing rate on risk-free asset is 25%.
(hint: use geometric return for optimal risky portfolio weight calculation)
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