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d Suppose you are considering an investment in two risky assets. The following table summarizes the risk and return characteristics of the above two risky
d Suppose you are considering an investment in two risky assets. The following table summarizes the risk and return characteristics of the above two risky assets. Security Asset E Asset D Expected return 20% Standard deviation 15% 10% 8% The correlation of rates of return between the two risky assets is -0.2. Using the above information, determine the expected return and standard deviation of the optimal risky portfolio consisting of the two risky assets. Show your calculations. (15 marks) e Given that a risk-free asset with a return of 2% is available, what is the Sharpe ratio of the optimal risky portfolio in part (d)? Show your calculations. (4 marks) f Suppose a risk-free asset with a return of 2% is available and assume that the optimal market portfolio is with an expected return of 10% and a standard deviation of 8%. If a risk-averse investor can only accept a risk of a standard deviation of 5%, what would be the expected return of the optimal portfolio invested in by this investor? What is the portion of risk-free asset in this optimal portfolio Show your calculations. (12 marks)
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