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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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